fy2008annualreportonform10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
________________
FORM
10-K
[x]
|
ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended January 27,
2008
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OR
[_]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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Commission
file number: 0-23985
NVIDIA
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
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94-3177549
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
No.)
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2701
San Tomas Expressway
Santa
Clara, California 95050
(408)
486-2000
(Address,
including zip code, and telephone number, including area code, of principal
executive offices)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
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Name of each exchange on which
registered
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Common
Stock, $0.001 par value per share
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The
NASDAQ Global Select Market
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o
(Do not check if a
smaller reporting
company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes o No x
The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of July 29, 2007 was approximately $12.8 billion (based on the
closing sales price of the registrant’s common stock as reported by the NASDAQ
Global Select Market, on July 27, 2007). Shares of common stock held by each
current executive officer and director and by each person who is known by the
registrant to own 5% or more of the outstanding common stock have been excluded
from this computation in that such persons may be deemed to be affiliates of the
registrant. Share ownership information of certain persons known by the
registrant to own greater than 5% of the outstanding common stock for purposes
of the preceding calculation is based solely on information on Schedule 13G
filed with the Commission and is as of July 29, 2007. This determination of
affiliate status is not a conclusive determination for other
purposes.
The
number of shares of common stock outstanding as of March 14, 2008 was
554,782,115.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s Proxy Statement for its 2008 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission by May 26, 2008, are
incorporated by reference.
NVIDIA
CORPORATION
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Forward-Looking
Statements
When
used in this Annual Report on Form 10-K, the words “believes,” “plans,”
“estimates,” “anticipates,” “expects,” “intends,” “allows,” “can,” “will” and
similar expressions are intended to identify forward-looking statements. These
statements relate to future periods and include, but are not limited to,
statements as to: the features, benefits, capabilities, performance, impact,
production and availability of our technologies and products; visual computing;
the physics engine; seasonality; acquisitions and strategic investments; our
strategies and objectives; mobile devices; new product lines; digital
multimedia; product cycles; design wins; design support; computer-aided design;
market share; average selling prices; our growth and success; factors
contributing to our growth and success; our financial results; our inventories;
expensing of stock options; the impact of stock-based compensation expense;
critical accounting policies; mix and sources of revenue; expenditures; cash
flow and cash balances; liquidity; uses of cash; backlog; dividends; investments
and marketable securities; our stock repurchase program; our internal control
over financial reporting; our disclosure controls and procedures; recent
accounting pronouncements; our competition and competitive position; our
intellectual property; the importance of our strategic relationships; customer
demand; reliance on a limited number of customers and suppliers; international
operations; our ability to attract and retain qualified personnel; our exchange
rate risk; compliance with environmental laws and regulations; litigation
arising from our historical stock option grant practices and financial
restatements; the Department of Justice subpoena and investigation; and
litigation matters. Forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected. These risks and uncertainties include, but are
not limited to, the risks discussed below as well as difficulties associated
with: conducting international operations; slower than anticipated growth;
forecasting customer demand; unanticipated decreases in average selling prices;
increased sales of lower margin products; difficulty in collecting accounts
receivable; fixed operating expenses; our inability to decrease inventory
purchase commitments; difficulties in entering new markets; slower than expected
development of a new market; inventory write-downs; entry of new competitors in
our established markets; reduction in demand for our products; market acceptance
of competitors’ products instead of our products; software or manufacturing
defects; the impact of competitive pricing pressures; disruptions in our
relationships with our partners and suppliers; supply constraints; fluctuations
in general economic conditions; fluctuations in investments and the securities
market; failure to achieve design wins; changes in customers’ purchasing
behaviors; international and political conditions; the concentration of sales of
our products to a limited number of customers; decreases in demand for our
products; delays in the development of new products by us or our partners;
delays in volume production of our products; developments in and expenses
related to litigation; our inability to realize the benefits of acquisitions;
the outcome of litigation or regulatory actions; and the matters set forth under
Item 1A. - Risk Factors. These forward-looking statements speak only as of the
date hereof. Except as required by law, we expressly disclaim any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in our expectations with
regard thereto or any change in events, conditions or circumstances on which any
such statement is based.
All
references to “NVIDIA,” “we,” “us,” “our” or the “Company” mean NVIDIA
Corporation and its subsidiaries, except where it is made clear that the term
means only the parent company.
NVIDIA,
GeForce, SLI, Hybrid SLI, GoForce, NVIDIA Quadro, Quadro, NVIDIA Quadro Plex,
NVIDIA nForce, PureVideo, CUDA, Tesla, NVIDIA APX, PhysX, Ageia, Mental Images,
Mental Ray, and the NVIDIA logo are our trademarks and/or registered trademarks
in the United States and other countries that are used in this document. We may
also refer to trademarks of other corporations and organizations in this
document.
Our Company
NVIDIA Corporation is
the worldwide leader in
visual computing technologies and the inventor of the graphic processing unit,
or the GPU. Our products
are designed to generate
realistic, interactive graphics on consumer and professional computing
devices. We serve the
entertainment and consumer market with our GeForce products, the professional
design and visualization market with our Quadro products, and the
high-performance computing market with our Tesla products. We have four major product-line
operating segments: the GPU Business, the professional solutions
business, or PSB, the media and communications
processor, or MCP, business, and the consumer products
business, or CPB. Our GPU business is comprised primarily of our
GeForce products that support desktop and notebook personal computers, or
PCs, plus memory products. Our PSB is comprised of our NVIDIA Quadro
professional workstation products and other professional graphics products,
including our NVIDIA Tesla high-performance computing products. Our MCP business
is comprised of NVIDIA nForce core logic and motherboard GPU, or mGPU products.
Our CPB is comprised of our GoForce and APX
mobile brands and products that support handheld personal media players, or
PMPs, personal digital assistants, or PDAs, cellular phones and other handheld
devices. CPB also includes license, royalty, other revenue and associated costs
related to video game consoles and other digital consumer electronics
devices. Original equipment manufacturers, or
OEMs, original design manufacturers, or ODMs, add-in-card manufacturers, system
builders and consumer electronics companies worldwide utilize NVIDIA processors
as a core component of their entertainment, business and professional solutions. We were incorporated in California in April 1993 and reincorporated in
Delaware in April 1998. Our headquarter
facilities are in Santa
Clara, California. Our Internet address is www.nvidia.com. The contents of our website are not a
part of this Form 10-K.
GPU Business
Our GPU Business is
comprised primarily of our GeForce products that support desktop and notebook
PCs, plus memory products. Our GPU Business is focused on Microsoft Windows and
Apple PC platforms. GeForce GPUs power PCs made by or distributed by
virtually every PC OEM worldwide in desktop PCs, notebook PCs, PCs loaded with
Windows Media Center and media extenders such as the Apple
TV. GPUs enhance the user experience for playing video games, editing
photos, viewing and editing videos and high-definition, or HD, movies. GPUs also
enable the rich visual user interfaces of the Windows Vista and Apple OS X
operating systems. The combination of the programmable Unified Shader GPU with
Microsoft Corporation’s, or Microsoft’s, DirectX 10 high-level shading language
is known as DirectX 10 GPUs. Combined with the ability to directly access the
GPU via the new Windows Vista applications from Microsoft Office to Web 2.0,
applications can now incorporate improved quality through 3D
effects.
We believe we are in an era
where visual computing is becoming increasingly important to consumers and other
end users of our products. Our strategy is to promote our GeForce brand as
one of the most important processors through technology leadership, increasing
programmability, and great content experience. In fiscal year 2008,
our strategy was to extend our architectural and technology advantage with our
second-generation DirectX 10 GPUs, the GeForce 8-series GPUs. During fiscal year
2008, we added the NVIDIA GeForce 8800 Ultra, GeForce 8800 GT, GeForce 8600,
GeForce 8500, and GeForce 8300 to our GeForce 8-series of GPUs, which previously
included the GeForce 8800 GTX and 8800 GTS products. Our standalone desktop GPU
category share grew from 52% to 64% in fiscal year 2008, according to the
Mercury Research 2006 and 2007 Fourth Quarter PC Graphics Reports,
respectively.
During fiscal year 2008, we
launched a new family of GeForce 8M Series notebook GPUs. The
GeForceM and NVIDIA Quadro FX mobile families represent our notebook GPUs and
include the GeForce 8M, GeForce 7 Go, and NVIDIA Quadro FX M GPUs. These GPUs
are designed to deliver desktop graphics performance and features for multiple
notebook configurations such as desktop replacement notebooks, multimedia
notebooks, thin-and-light notebooks and notebook workstations. The GeForce M and
GeForce Go products are designed to serve the needs of both enterprise and
consumer users. The NVIDIA Quadro FX M products are designed to serve the needs
of workstation professionals in the area of product design and digital content
creation. We experienced a high degree of design-win success for the
Intel Santa Rosa platform cycle during fiscal year 2008, which helped our
standalone notebook category share grow from 58% to 75%, according to the
Mercury Research 2006 and 2007 Fourth Quarter PC Graphics Reports,
respectively.
Professional Solutions
Business
Our PSB is comprised of
our NVIDIA Quadro professional workstation products and other professional
graphics products, including our NVIDIA Tesla high-performance computing
products. Our NVIDIA Quadro brand products are designed to deliver the highest
possible level of performance and compatibility for the professional
industry. The NVIDIA Quadro family consists of the NVIDIA Quadro Plex
Visual Computing System, or VCS, NVIDIA Quadro FX, and the NVIDIA Quadro Night
Vision Systems, or NVS, professional workstation processors. NVIDIA Quadro
products are recognized by many as the standard for professional graphics
solutions needed to solve many of the world’s complex visual computing
challenges in the manufacturing, entertainment, medical, science, and aerospace
industries. NVIDIA Quadro products are fully certified by several software
developers for professional workstation applications and are designed to deliver
the graphics performance and precision required by professional
applications.
We believe that recent years
have experienced an increasing level of global adoption for the computer-aided
design approach of product creation. NVIDIA has the leading position
in the professional graphics category with over 70% share by revenue according
to the 2007 Fourth Quarter International Data Corporation, or IDC, Market
Research Report. We achieved this market position by providing
innovative GPU technology, software, and tools that integrate the capabilities
of our GPU with a broad array of visualization products. During
fiscal year 2008, we launched seven new Quadro solutions, including the Quadro
FX 370 and 570. We also introduced a new line of notebook workstation GPUs - the
NVIDIA Quadro FX 1600M, 570M and 360M – as well as a new line of desktop
workstation GPUs – the NVIDIA Quadro FX 4600 and 5600 – all based on our GeForce
8-series unified shader architecture. We expanded our NVIDIA Quadro
Plex family with the introduction of the NVIDIA Quadro Plex VCS IV, a new
version of the NVIDIA Quadro Plex Visual Computing System, or VCS, which
provides enhanced performance for a wide range of high-performance,
graphics-intensive styling and design, oil and gas, and scientific
applications.
In fiscal year 2008, we
also introduced NVIDIA Tesla, our entry into the high-performance computing
industry. Tesla is a new family of GPU computing products that delivers
processing capabilities for high-performance computing applications. The Tesla
family consists of the C870 GPU Computing processor, the D870 Deskside
Supercomputer and the S870 1U Computing Server. During the third quarter of
fiscal year 2008, we began shipments of our Tesla C870 GPU computing processor
and D870 desk-side supercomputer products. Compute Unified Device Architecture,
or CUDA, software has been acknowledged for its ability to transform a GPU into
a supercomputer and to deliver the level of performance normally found in large
and expensive clusters residing in datacenters to the desktop of scientists and
engineers around the world. During fiscal year 2008, NVIDA made available the
first public version of the NVIDIA CUDA Software Developer Kit and C-compiler
for computing on NVIDIA GPUs.
In fiscal year 2008, we
completed our acquisition of Mental Images, an industry leader in photorealistic
rendering technology. Mental Images’ Mental Ray product is considered by many to
be the most pervasive ray tracing renderer in the industry. Mental
Images visualization technology is embedded in most major digital content
creation, or DCC, and computer aided design, or CAD, applications, and their
rendering technology is deployed by major manufacturers and film studios. We
believe that this strategic combination will enable the development of tools and
technologies that will advance the state of visualization, will be optimized for
next generation computing architectures, and will create new product categories
for both hardware and software.
MCP Business
Our MCP Business is comprised of
NVIDIA nForce core logic and NVIDIA GeForce mGPU products. Our NVIDIA
nForce and GeForce mGPU families of products address the multi-billion dollar
computer core logic market. Core logic is the computer’s “central
nervous system,” controlling and directing high speed data between the central
processing unit, or CPU, the GPU, storage, and networks. High
quality, long-term reliability, and top performance are key customer demands of
core logic suppliers. Our strategy for MCPs aligns with what we anticipate will
drive growth in the MCP segment such as multi-core, ever-increasing-speed
networking and storage technologies, and integration of complex features such as
virtualization, security processing and network processing. During
the third quarter of fiscal year 2008, we shipped our first single-chip mGPUs
for Intel-processor-based desktop PCs. We believe that the GeForce
7000 mGPU family delivers the performance of an entry-level discrete GPU when
compared against traditional integrated graphics solutions. We also shipped the
GeForce 7050 mGPU, which targets the lower cost categories of the market. We are
now the only chipset supplier to support processor platforms created by both
Intel Corporation, or Intel, and Advanced Micro Devices Inc., or AMD, and the
only branded integrated GPU supplier for the Intel processor
platform. We believe that the integrated graphics opportunity
represents approximately 60% of the world PC market. We also extended the
reach of Scalable Link Interface, or SLI, technology into the performance
category with the launch of our NVIDIA nForce 650i SLI, 680i LT SLI and 680i
Ultra MCP products for Intel. We are now the second largest core logic supplier
in the world with 15% segment share of the total core logic market, according to
the Mercury Research 2007 Fourth Quarter PC Chipsets and Processors
report.
In fiscal year 2008, we
announced a new technology named Hybrid SLI. We named it hybrid
because this technology combines a powerful as well as an energy-efficient
engine and SLI because it is our multi-GPU technology. When GeForce
add-in graphics cards are connected to GeForce mGPUs, Hybrid SLI kicks in,
combining their processing power to deliver an improved
experience. The technology is application aware so, depending on the
processing demands of each application running on the host PC, the discrete GPU
may be completely shut-down in order to save power. For example, a PC
containing the combined power of dual GeForce 8800 GTX SLI add-in graphics cards
can reach 400 watts. If such a PC contained Hybrid SLI technology, both GPUs
could be powered down when the user is doing email, surfing the web, or watching
a Blu-ray movie, keeping the system quiet and consuming lower levels of
energy. But when a video game or any other demanding GPU application
is launched, the dual GeForce 8800 GTX’s would be powered up to deliver the
performance required to power the related application. Hybrid SLI was
made available starting with our GeForce8-series mGPUs.
Our MCP strategy is to
bring the benefits of GeForce GPUs to the most price sensitive categories while
creating exciting platform architectures like SLI, Hybrid SLI, and
Enthusiast System Architecture, or ESA. ESA is a standard for system
information protocol that links a PC system’s various critical components – such
as fan, power supply, smart chassis, GPUs, and motherboards. It
enables a unified architecture for applications and users to control and
optimize the performance of their system. SLI, Hybrid SLI, and ESA
are examples of how NVIDIA creates architectures that advance the capabilities
of the PC.
Consumer Products
Business
Our CPB is comprised of
our GoForce and APX mobile brands and products that support PMPs, PDAs, cellular
phones and other handheld devices. This business also includes license, royalty,
other revenue and associated costs related to video game consoles and other
digital consumer electronics devices.
We believe
that mobile devices like phones, music players, and portable navigation
devices will increasingly become multi-function, multi-tasking,
PCs. As such, we anticipate the architecture of these devices will
increasingly become more consumer PC-like and be capable of delivering all the
entertainment and web experiences that end users currently enjoy on a PC, but in
a form-factor that fits nicely in their hands. Our mobile strategy is
to create an application processor and a computer-on-a-chip that enables this
experience. NVIDIA GoForce mobile products and application processors
implement design techniques, both inside the chips and at the system level,
which result in high performance and long battery life. These technologies
enhance visual display capabilities, improve connectivity, and minimize chip and
system-level power consumption. NVIDIA GoForce products can be found primarily
in multimedia cellular phones and other handheld devices. In February 2008, we
launched the NVIDIA APX 2500, our first such application
processor. The APX 2500 is a computer-on-a-chip designed to meet the
growing multimedia demands of today's mobile phone user. The APX 2500
is the culmination of several hundred man years of research and
development. We believe that the mobile application processor is an
area where we can add a significant amount of value and we also believe that it
represents growth opportunity that could ultimately reach the level of several
hundred million units a year. During the first quarter of fiscal year 2008,
we shipped the GoForce 6100, which was the first product resulting from our
acquisition of PortalPlayer, Inc., or PortalPlayer, in fiscal year
2007. The GoForce 6100 can be found in primarily in
PMPs.
Our
Strategy
We design our products to
enable our PC OEMs, ODMs, system builders, motherboard and add-in board
manufacturers, and cellular phone and consumer electronics OEMs, to build
products that deliver state-of-the-art features, performance, compatibility and
power efficiency while maintaining competitive pricing and profitability. We
believe that by developing 3D graphics, HD, video and media communications
solutions that provide superior performance and address the key requirements of
each of the product categories we serve, we will accelerate the adoption of HD
digital media platforms and devices throughout these segments. We combine
scalable architectural technology with mass market economies-of-scale to deliver
a complete family of products that span from professional workstations, to
consumer PCs, to multimedia-rich cellular phones.
Our objective is to be the
leading supplier of performance GPUs, MCPs and application processors that
support PDAs, PMPs, cellular phones and other handheld devices. Our current
focus is on the desktop PC, professional workstation, notebook PC,
high-performance computing, application processor, server, multimedia-rich
cellular phone and video game console product lines, and we plan to expand into
other product lines. Our strategy to achieve this objective includes the
following key elements:
Build Award-Winning,
Architecturally-Compatible 3D Graphics, HD Video, Media Communications and
Ultra-Low Power Product Families for the PC, Handheld and Digital Entertainment
Platforms. Our strategy is to achieve market
segment leadership in these platforms by providing award-winning performance at
every price point. By developing 3D graphics, HD video and media communications
solutions that provide superior performance and address the key requirements of
these platforms, we believe that we will accelerate the adoption of 3D graphics
and rich digital media.
Target Leading OEMs, ODMs and
System Builders. Our strategy is to enable our
leading PC, handheld and consumer electronics OEMs, ODMs and major system
builder customers to differentiate their products in a highly competitive
marketplace by using our products. We believe that design wins with these
industry leaders provide market validation of our products, increase brand
awareness and enhance our ability to penetrate additional leading customer
accounts. In addition, we believe that close relationships with OEMs, ODMs and
major system builders will allow us to better anticipate and address customer
needs with future generations of our products.
Sustain Technology and Product
Leadership in 3D Graphics and HD Video, and Media Communications and Ultra-Low
Power. We are focused on using our advanced
engineering capabilities to accelerate the quality and performance of 3D
graphics, HD video, media communications and ultra-low power processing in PCs
and handheld devices. A fundamental aspect of our strategy is to actively
recruit the best 3D graphics and HD video, networking and communications
engineers in the industry, and we believe that we have assembled an
exceptionally experienced and talented engineering team. Our research and
development strategy is to focus on concurrently developing multiple generations
of GPUs, including GPUs for high-performance computing, MCPs and mobile and
consumer products that support PMPs, PDAs, cellular phones and other handheld
devices using independent design teams. As we have in the past, we intend to use
this strategy to achieve new levels of graphics, networking and communications
features and performance and ultra-low power designs, enabling our customers to
achieve superior performance in their products.
Increase Market
Share. We believe that substantial market share
will be important to achieving success. We intend to achieve a leading share of
the market in areas in which we don't have a leading market share, and maintain
a leading share of the market in areas in which we do have the lead, by devoting
substantial resources to building families of products for a wide range of
applications that offer significant improvement in performance over existing
products.
Use Our Expertise in Digital
Multimedia. We believe the synergy created by the
combination of 3D graphics, HD video and the Internet will fundamentally change
the way people work, learn, communicate and play. We believe that our expertise
in HD graphics and system architecture positions us to help drive this
transformation. We are using our expertise in the processing and transmission of
high-bandwidth digital media to develop products designed to address the
requirements of high-bandwidth concurrent multimedia.
Use our Intellectual Property and
Resources to Enter into License and Development Contracts. From time to
time, we expect to enter into license arrangements that will require significant
customization of our intellectual property components. For license
arrangements that require significant customization of our intellectual property
components, we generally recognize this license revenue using the
percentage-of-completion method of accounting over the period that services are
performed. For example, in fiscal year 2006, we entered into an agreement with
Sony Computer Entertainment, Inc., or SCE, to jointly develop a custom GPU for
SCE’s PlayStation3. Our collaboration with SCE includes license fees and
royalties for the PlayStation3 and all derivatives, including next-generation
digital consumer electronics devices. In addition, we are licensing
software development tools for creating shaders and advanced graphics
capabilities to SCE.
Sales
and Marketing
Our worldwide sales and
marketing strategy is a key part of our objective to become the leading supplier
of performance GPUs, MCPs, and applications processors that support PMPs, PDAs,
cellular phones and other handheld devices. Our sales and marketing teams work
closely with each industry’s respective OEMs, ODMs, system builders, motherboard
manufacturers, add-in board manufacturers and industry trendsetters,
collectively referred to as our Channel, to define product features,
performance, price and timing of new products. Members of our sales team have a
high level of technical expertise and product and industry knowledge to support
the competitive and complex design win process. We also employ a highly skilled
team of application engineers to assist the Channel in designing, testing and
qualifying system designs that incorporate our products. We believe that the
depth and quality of our design support are keys to improving the Channel’s
time-to-market, maintaining a high level of customer satisfaction within the
Channel and fostering relationships that encourage customers to use the next
generation of our products.
In the GPU and MCP
segments we serve, the sales process involves achieving key design wins with
leading OEMs and major system builders and supporting the product design into
high volume production with key ODMs, motherboard manufacturers and add-in board
manufacturers. These design wins in turn influence the retail and system builder
channel that is serviced by add-in board and motherboard manufacturers. Our
distribution strategy is to work with a number of leading independent contract
equipment manufacturers, or CEMs, ODMs, motherboard manufacturers, add-in board
manufacturers and distributors each of which have relationships with a broad
range of major OEMs and/or strong brand name recognition in the retail channel.
In the CPB segment we serve, the sales process primarily involves achieving key
design wins directly with the leading handheld OEMs and supporting the product
design into high-volume production. Currently, we sell a significant portion of
our processors directly to distributors, CEMs, ODMs, motherboard manufacturers
and add-in board manufacturers, which then sell boards and systems with our
products to leading OEMs, retail outlets and to a large number of system
builders.
Although a small number
of our customers represent the majority of our revenue, their end customers
include a large number of OEMs and system builders throughout the
world. As a result of our Channel strategy, our sales are focused on
a small number of customers. Sales to our largest customer, Asustek Computer,
Inc. accounted for 10% of our total revenue for fiscal year 2008.
To encourage software
title developers and publishers to develop games optimized for platforms
utilizing our products, we seek to establish and maintain strong relationships
in the software development community. Engineering and marketing personnel
interact with and visit key software developers to promote and discuss our
products, as well as to ascertain product requirements and solve technical
problems. Our developer program makes certain of our products available to
developers prior to volume availability in order to encourage the development of
software titles that are optimized for our products.
Backlog
Our sales are primarily
made pursuant to standard purchase orders. The quantity of products purchased by
our customers as well as our shipment schedules are subject to revisions that
reflect changes in both the customers’ requirements and in manufacturing
availability. The semiconductor industry is characterized by short lead time
orders and quick delivery schedules. In light of industry practice and
experience, we believe that only a small portion of our backlog is
non-cancelable and that the dollar amount associated with the non-cancelable
portion is not significant. We do not believe that a backlog as of any
particular date is indicative of future results.
Seasonality
Our industry is largely
focused on the consumer products market. Due to the seasonality in this market,
we typically expect to see stronger revenue performance in the second half of
the calendar year related to the back-to-school and holiday
seasons.
Manufacturing
We do not directly
manufacture semiconductor wafers used for our products. Instead, we utilize what
is known as a fabless manufacturing strategy for all of our product-line
operating segments whereby we employ world-class suppliers for all phases of the
manufacturing process, including wafer fabrication, assembly, testing and
packaging. This strategy uses the expertise of industry-leading suppliers that
are certified by the International Organization for Standardization, or ISO, in
such areas as fabrication, assembly, quality control and assurance, reliability
and testing. In addition, this strategy allows us to avoid many of the
significant costs and risks associated with owning and operating manufacturing
operations. Our suppliers are also responsible for procurement of most of the
raw materials used in the production of our products. As a result, we can focus
our resources on product design, additional quality assurance, marketing and
customer support.
We utilize
industry-leading suppliers, such as Taiwan Semiconductor Manufacturing
Corporation, or TSMC, United Microelectronics Corporation, or UMC, Chartered
Semiconductor Manufacturing, or Chartered, Semiconductor Manufacturing
International Corporation, or SMIC, and Austria Micro Systems, or AMS to produce
our semiconductor wafers. We then utilize independent subcontractors, such as
Advanced Semiconductor Engineering, or ASE, Amkor Technology, or Amkor, JSI
Logistics Ltd., or JSI, King Yuan Electronics Co., Ltd, or KYEC, Siliconware
Precision Industries Company Ltd., or SPIL, and STATS ChipPAC Incorporated, or
ChipPAC, to perform assembly, testing and packaging of most of our
products.
We typically receive
semiconductor products from our subcontractors, perform incoming quality
assurance and then ship the semiconductors to CEMs, distributors, motherboard
and add-in board manufacturer customers from our third-party warehouse in Hong
Kong. Generally, these manufacturers assemble and test the boards based on our
design kit and test specifications, and then ship the products to retailers,
system builders or OEMs as motherboard and add-in board solutions.
Inventory
and Working Capital
Our management focuses
considerable attention on managing our inventories and other
working-capital-related items. We manage inventories by communicating with our
customers and then using our industry experience to forecast demand on a
product-by-product basis. We then place manufacturing orders for our products
that are based on forecasted demand. The quantity of products actually purchased
by our customers as well as shipment schedules are subject to revisions that
reflect changes in both the customers’ requirements and in manufacturing
availability. We generally maintain substantial inventories of our products
because the semiconductor industry is characterized by short lead time orders
and quick delivery schedules.
Research
and Development
We believe that the
continued introduction of new and enhanced products designed to deliver leading
3D graphics, HD video, audio, ultra-low power communications, storage, and
secure networking performance and features is essential to our future success.
Our research and development strategy is to focus on concurrently developing
multiple generations of GPUs, MCPs and our consumer products that support PMPs,
PDAs, cellular phones or other handheld devices using independent design teams.
Our research and development efforts are performed within specialized groups
consisting of software engineering, hardware engineering, very large scale
integration design engineering, process engineering, architecture and
algorithms. These groups act as a pipeline designed to allow the efficient
simultaneous development of multiple generations of products.
A critical component of our
product development effort is our partnerships with leaders in the computer
aided design, or CAD, industry. We invest significant resources in the
development of relationships with industry leaders, including Cadence Design
Systems, Inc., and Synopsys, Inc., often assisting these companies in the
product definition of their new products. We believe that forming these
relationships and utilizing next-generation development tools to design,
simulate and verify our products will help us remain at the forefront of the 3D
graphics market and develop products that utilize leading-edge technology on a
rapid basis. We believe this approach assists us in meeting the new design
schedules of PC OEM and other manufacturers.
We substantially increased our
engineering and technical resources in fiscal year 2008, and have 3,255
full-time employees engaged in research and development as of January 27, 2008,
compared to 2,668 employees as of January 28, 2007. The majority of the research
and development employees added during fiscal year 2008 are located in
international locations, including India, China, Taiwan and various locations in
Europe. During fiscal years 2008, 2007 and 2006, we incurred research and
development expenditures of $691.6 million, $553.5 million and
$357.1 million, respectively. Research and development expenses included
$76.6 million, $70.1 million and $5.9 million related to non-cash stock-based
compensation for fiscal years 2008, 2007 and 2006.
Competition
The market for GPUs,
MCPs, and application processors that support PMPs, PDAs, cellular phones or
other handheld devices is intensely competitive and is characterized by rapid
technological change, evolving industry standards and declining average selling
prices. We believe that the principal competitive factors in this market are
performance, breadth of product offerings, access to customers and distribution
channels, software support, conformity to industry standard Application
Programming Interface, or APIs, manufacturing capabilities, price of processors,
and total system costs. We believe that our ability to remain competitive will
depend on how well we are able to anticipate the features and functions that
customers will demand and whether we are able to deliver consistent volumes of
our products at acceptable levels of quality. We expect competition to increase
from both existing competitors and new market entrants with products that may be
less costly than ours, or may provide better performance or additional features
not provided by our products. In addition, it is possible that new competitors
or alliances among competitors could emerge and acquire significant market
share.
A significant source of
competition is from companies that provide or intend to provide GPU, MCP, and
application processors that support PMPs, PDAs, cellular phones or other
handheld devices. Some of our competitors may have greater marketing, financial,
distribution and manufacturing resources than we do and may be more able to
adapt to customer or technological changes. Currently, Intel, which has greater
resources than we do, is working on a multi-core architecture code-named
Larrabee, which may compete with our products in various
markets. Intel may also release an enthusiast level discrete GPU
based on the Larrabee architecture.
Our current competitors include
the following:
· suppliers
of discrete MCPs that incorporate a combination of networking, audio,
communications and input/output, or I/O, functionality as part of their existing
solutions, such as AMD, Broadcom Corporation, or Broadcom, Silicon Integrated
Systems, Inc., or SIS, VIA Technologies, Inc., or VIA, and
Intel;
· suppliers
of GPUs, including MCPs that incorporate 3D graphics functionality as part of
their existing solutions, such as AMD, Intel, Matrox Electronics Systems
Ltd., SIS, and VIA;
· suppliers
of application processors that support PMPs, PDAs, cellular phones or other
handheld devices intellectual property such as AMD, Broadcom, Fujitsu Limited,
Imagination Technologies Ltd., ARM Holdings plc, Marvell Technology Group Ltd,
or Marvell, NEC Corporation, Qualcomm Incorporated, Renesas Technology, Samsung,
Seiko-Epson, Texas Instruments Incorporated, and Toshiba America, Inc.;
and
· suppliers
of application processors for handheld and embedded devices that incorporate
multimedia processing as part of their existing solutions such as Broadcom,
Texas Instruments Inc., Qualcomm Incorporated, Marvell, Freescale Semiconductor
Inc., Renesas Technology, Samsung, and ST Microelectronics.
We expect substantial
competition from both Intel’s and AMD’s strategy of selling platform solutions,
such as the success Intel achieved with its Centrino platform solution.
AMD has also announced a platform solution. Additionally, we expect that Intel
and AMD will extend this strategy to other segments, including the possibility
of successfully integrating a central processing unit, or CPU, and a GPU on the
same chip, as evidenced by AMD’s announcement of its Fusion processor project.
If AMD and Intel continue to pursue platform solutions, we may not be able to
successfully compete and our business would be negatively impacted.
If and to the extent we
offer products in new markets, we may face competition from some of our existing
competitors as well as from companies with which we currently do not compete. We
cannot accurately predict if we will compete successfully in any new markets we
may enter. If we are unable to compete in our current or new markets, demand for
our products could decrease which could cause our revenue to decline and our
financial results to suffer.
Patents
and Proprietary Rights
We rely primarily on a
combination of patents, trademarks, trade secrets, employee and third-party
nondisclosure agreements and licensing arrangements to protect our intellectual
property in the United States and internationally. Our issued patents have
expiration dates from October 29, 2008 to May 24, 2027. We have
numerous patents issued, allowed and pending in the United States and in foreign
jurisdictions. Our patents and pending patent applications primarily relate to
our products and the technology used in connection with our products. We also
rely on international treaties, organizations and foreign laws to protect our
intellectual property. The laws of certain foreign countries in which our
products are or may be manufactured or sold, including various countries in
Asia, may not protect our products or intellectual property rights to the same
extent as the laws of the United States. This makes the possibility of piracy of
our technology and products more likely. We continuously assess whether and
where to seek formal protection for particular innovations and technologies
based on such factors as:
·
|
the
commercial significance of our operations and our competitors’ operations
in particular countries and
regions;
|
·
|
the
location in which our products are manufactured;
|
·
|
our
strategic technology or product directions in different countries; and
|
·
|
the
degree to which intellectual property laws exist and are meaningfully
enforced in different
jurisdictions.
|
Our pending patent
applications and any future applications may not be approved. In addition, any
issued patents may not provide us with competitive advantages or may be
challenged by third parties. The enforcement of patents by others may harm our
ability to conduct our business. Others may independently develop substantially
equivalent intellectual property or otherwise gain access to our trade secrets
or intellectual property. Our failure to effectively protect our intellectual
property could harm our business. We have licensed technology from third parties
for incorporation in some of our products and for defensive reasons, and expect
to continue to enter into such license agreements. These licenses may result in
royalty payments to third parties, the cross licensing of technology by us or
payment of other consideration. If these arrangements are not concluded on
commercially reasonable terms, our business could suffer.
Employees
As of January 27, 2008 we
had 4,985 employees, 3,255 of whom were engaged in research and development and
1,730 of whom were engaged in sales, marketing, operations and administrative
positions. None of our employees are covered by collective bargaining
agreements, and we believe our relationships with our employees are
good.
Financial
Information by Business Segment and Geographic Data
Our Chief
Executive Officer, who is considered to be our chief operating decision maker,
or CODM, reviews financial information presented on a operating segment basis
for purposes of making operating decisions and assessing financial
performance. During the first quarter of fiscal year 2008, we
reorganized our operating segments. We now report financial information for four
operating segments to our CODM: the GPU business, which is comprised primarily
of our GeForce products that support desktop and notebook PCs, plus memory
products, the PSB, which is comprised of our NVIDIA Quadro professional
workstation products and other professional graphics products, including our
NVIDIA Tesla high-performance computing products, the MCP business, which
is comprised of NVIDIA nForce core logic and motherboard GPU products, and our
CPB which is comprised of our GoForce and APX mobile brands and products that
support handheld PMPs, PDAs, cellular phones, other handheld devices and
license, royalty, other revenue and associated costs related to video game
consoles and other digital consumer electronics devices. In addition
to these operating segments, we have the “All Other” category that includes
human resources, legal, finance, general administration and corporate marketing
expenses, which total $266.2 million, $239.6 million, and $123.8
million during fiscal years 2008, 2007 and 2006, respectively, that we do
not allocate to our other operating segments as these expenses are not included
in the segment operating performance measures evaluated by our
CODM. “All Other” also includes the results of operations of other
miscellaneous reporting segments that are neither individually reportable, nor
aggregated with another operating segment. Revenue in the “All Other” segment is
primarily derived from sales of components. All relevant prior period
amounts have been revised to conform to the presentation of our current fiscal
year.
Our CODM
does not review any information regarding total assets on an operating segment
basis. Operating segments do not record intersegment revenue, and, accordingly,
there is none to be reported. The accounting policies for segment
reporting are the same as for NVIDIA as a whole. The information included
in Note 14 of the Notes to Consolidated Financial Statements is hereby
incorporated by reference.
Executive
Officers of the Registrant
The following sets forth
certain information regarding our executive officers, their ages and their
positions as of January 27, 2008:
Name
|
|
Age
|
|
Position
|
Jen-Hsun
Huang
|
|
44
|
|
President,
Chief Executive Officer and Director
|
Marvin
D. Burkett
|
|
65
|
|
Chief
Financial Officer
|
Ajay
K. Puri
|
|
53
|
|
Senior
Vice President, Worldwide Sales
|
David
M. Shannon
|
|
52
|
|
Senior
Vice President, General Counsel and Secretary
|
Debora
Shoquist
|
|
53
|
|
Senior
Vice President, Operations
|
Jen-Hsun Huang co-founded
NVIDIA in April 1993 and has served as its President, Chief Executive Officer
and a member of the Board of Directors since its inception. From 1985 to 1993,
Mr. Huang was employed at LSI Logic Corporation, a computer chip manufacturer,
where he held a variety of positions, most recently as Director of Coreware, the
business unit responsible for LSI’s “system-on-a-chip” strategy. From 1983 to
1985, Mr. Huang was a microprocessor designer for Advanced Micro Devices, Inc.,
a semiconductor company. Mr. Huang holds a B.S.E.E. degree from
Oregon State University and an M.S.E.E. degree from
Stanford University.
Marvin D. Burkett joined
NVIDIA as Chief Financial Officer in September 2002. From February 2000 until
joining NVIDIA, Mr. Burkett was a financial consultant and served as Chief
Financial Officer of Arcot Systems, a security software company. From 1998
to 1999, Mr. Burkett was the Executive Vice President and Chief Financial
Officer of Packard Bell NEC. Mr. Burkett also previously spent 26 years at
Advanced Micro Devices, Inc. where he held a variety of positions including
Chief Financial Officer, Senior Vice President and Corporate Controller. Mr.
Burkett holds B.S. and M.B.A. degrees from the University of
Arizona.
Ajay K. Puri joined NVIDIA
in December 2005 as Senior Vice President, Worldwide Sales. Prior to NVIDIA, he
held positions in sales, marketing, and general management over a 22-year career
at Sun Microsystems, Inc. Mr. Puri previously held marketing, management
consulting, and product development positions at Hewlett-Packard Company, Booz
Allen Hamilton Inc., and Texas Instruments Incorporated. Mr. Puri holds an
M.B.A. degree from Harvard University, an M.S.E.E. degree from the
California Institute of Technology and a B.S.E.E. degree from the University of
Minnesota.
David M.
Shannon joined NVIDIA in August 2002 as Vice President and General
Counsel. Mr. Shannon became Secretary of NVIDIA in April 2005 and a Senior Vice
President in December 2005. From 1993 to 2002, Mr. Shannon held various
counsel positions at Intel, including the most recent position of Vice President
and Assistant General Counsel. Mr. Shannon also practiced for eight years
in the law firm of Gibson Dunn and Crutcher, focusing on complex commercial and
high-technology related litigation. Mr. Shannon holds B.A. and J.D. degrees
from Pepperdine University.
Debora Shoquist joined
NVIDIA in September 2007 as Senior Vice President of Operations. From
2004 to 2007, Ms. Shoquist served as Senior Vice President of Operations at
JDS Uniphase Corporation, a provider of communications test and measurement
solutions and optical products for the telecommunications industry. From 2002 to
2004, she served as Senior Vice President and General Manager of the
Electro-Optics business at Coherent, Inc., a manufacturer of commercial and
scientific laser equipment. Her experience includes her role at Quantum
Corporation as the President of the Personal Computer Hard Disk Drive Division.
Her experience also includes senior roles at Hewlett-Packard Corporation. She
holds a B.S degree in Electrical Engineering from
Kansas State University and a B.S. degree in Biology from Santa
Clara University.
Available
Information
Our Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and, if applicable,
amendments to those reports filed or furnished pursuant to Section 13(a) of the
Securities Exchange Act of 1934, or the Exchange Act, are available free of
charge on or through our Internet web site, http://www.nvidia.com, as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the Securities and Exchange Commission, or the SEC. Our web site
and the information on it or connected to it is not a part of this Form
10-K.
In
evaluating NVIDIA and our business, the following factors should be considered
in addition to the other information in this Annual Report on Form 10-K.
Before you buy our common stock, you should know that making such an investment
involves some risks including, but not limited to, the risks described below.
Additionally, any one of the following risks could seriously harm our business,
financial condition and results of operations, which could cause our stock price
to decline. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial may also impair our business
operations.
Risks
Related to Competition
If
we are unable to compete in the markets for our products, our financial results
could be adversely impacted.
The
markets for our products are highly competitive and are characterized by rapid
technological change, new product introductions, evolving industry standards,
and declining average selling prices. We believe that our ability to remain
competitive will depend on how well we are able to anticipate the features and
functions that customers will demand from our products and whether we are able
to deliver consistent volumes of our products at acceptable prices and quality
levels. We believe other factors impacting our ability to compete
are:
·
|
product
bundling by competitors with multiple product
lines;
|
·
|
breadth
and frequency of product offerings;
|
·
|
access
to customers and distribution
channels;
|
·
|
backward-forward
software support;
|
·
|
conformity
to industry standard application programming interfaces;
and
|
·
|
manufacturing
capabilities.
|
We expect
competition to increase both from existing competitors and new market entrants
with products that may be less costly than ours, or may provide better
performance or additional features not provided by our products, either of which
could harm our business. Some of these competitors may have or be able to
obtain greater marketing, financial, distribution and manufacturing resources
than we do and may be better able to adapt to customer or technological changes.
Currently, Intel, which has greater resources than we do, is working on a
multi-core architecture code-named Larrabee, which may compete with our products
in various markets. Intel may also release an enthusiast level
discrete GPU based on the Larrabee architecture. In order to compete, we may
have to invest substantial amounts in research and development without assurance
that our products will be superior to those of our competitors or that the
products will achieve market acceptance.
An
additional significant source of competition comes from companies that provide
or intend to provide competing product solutions. For example, we are the
largest supplier of AMD 64 chipsets with 60% segment share in the fourth quarter
of calendar year 2007, as reported in the 2007 Fourth Quarter PC Processor and
Chipset report from Mercury Research. Decline in demand for our chipsets in the
AMD segment as a result of the offerings of a new or existing competitor could
materially impact our financial results.
Our
current competitors include the following:
·
|
suppliers
of discrete MCPs that incorporate a combination of networking, audio,
communications and input/output functionality as part of their existing
solutions, such as AMD, Broadcom, Silicon Integrated Systems Corporation,
or SIS, VIA Technologies, Inc., or VIA, and
Intel;
|
·
|
suppliers
of GPUs, including MCPs that incorporate 3D graphics functionality as part
of their existing solutions, such as AMD, Intel, Matrox Electronics
Systems Ltd., SIS and VIA;
|
·
|
suppliers
of GPUs or GPU intellectual property for handheld and digital consumer
electronics devices that incorporate advanced graphics functionality as
part of their existing solutions, such as AMD, Broadcom, Fujitsu Limited,
Imagination Technologies Ltd., ARM Holdings plc, Marvell Technology Group
Ltd., or Marvell, NEC Corporation, Qualcomm Incorporated, or Qualcomm,
Renesas Technology, Seiko-Epson, Texas Instruments Incorporated, and
Toshiba America, Inc.; and
|
·
|
suppliers
of application processors for handheld and digital consumer electronics
devices that incorporate multimedia processing as part of their existing
solutions such as Broadcom, Texas Instruments Inc., Qualcomm, Marvell,
Freescale Semiconductor Inc., Samsung and ST
Microelectronics.
|
If and to
the extent we offer products in new markets, we may face competition from some
of our existing competitors as well as from companies with which we currently do
not compete. We cannot accurately predict if we will compete successfully in any
new markets we may enter. If we are unable to compete in our current or new
markets, demand for our products could decrease which could cause our revenue to
decline and our financial results to suffer.
As
Intel and AMD continue to pursue platform solutions, we may not be able to
successfully compete and our business would be negatively impacted.
We expect
substantial competition from both Intel’s and AMD’s strategy of selling platform
solutions, such as the success Intel achieved with its Centrino platform
solution. AMD has also announced a platform solution. Additionally, we
expect that Intel and AMD will extend this strategy to other segments, including
the possibility of successfully integrating a central processing unit, or CPU,
and a GPU on the same chip, as evidenced by AMD’s announcement of its Fusion
processor project. If AMD and Intel continue to pursue platform solutions, we
may not be able to successfully compete and our business would be negatively
impacted.
Risks
Related to Our Partners and Customers
We
depend on foundries to manufacture our products and these third parties may not
be able to satisfy our manufacturing requirements, which would harm our
business.
We do
not manufacture the silicon wafers used for our products and do not own or
operate a wafer fabrication facility. Instead, industry-leading
foundries manufacture our semiconductor wafers using their state-of-the-art
fabrication equipment and techniques. The foundries, which have limited
capacity, also manufacture products for other semiconductor companies, including
some of our competitors. Since we do not have long-term commitment
contracts with any of the foundries, they do not have an obligation to provide
us with any minimum quantity of product at any time or at any set price, except
as may be provided in a specific purchase order. Most of our
products are only manufactured by one foundry at a time. In times of
high demand, the foundries could choose to prioritize their capacity for other
companies, reduce or eliminate deliveries to us, or increase the prices that
they charge us. If we are unable to meet customer demand due to
reduced or eliminated deliveries or have to increase the prices of our products,
we could lose sales to customers, which would negatively impact our revenue and
our reputation.
Because
the lead-time needed to establish a strategic relationship with a new
manufacturing partner could be several quarters, we do not have an alternative
source of supply for our products. In addition, the time and effort to qualify a
new foundry could result in additional expense, diversion of resources, or lost
sales any of which would negatively impact our financial results. We believe
that long-term market acceptance for our products will depend on reliable
relationships with the third-party manufacturers we use to ensure adequate
product supply and competitive pricing to respond to customer
demand.
Failure
to achieve expected manufacturing yields for our products could negatively
impact our financial results and damage our reputation.
Manufacturing
yields for our products are a function of product design, which is developed
largely by us, and process technology, which typically is proprietary to the
manufacturer. Low yields may result from either product design or process
technology failure. We do not know a yield problem exists until our
design is manufactured. When a yield issue is identified, the product
is analyzed and tested to determine the cause. As a result, yield problems may
not be identified until well into the production process. Resolution of yield
problems requires cooperation by and communication between us and the
manufacturer. Because of our potentially limited access to wafer foundry
capacity, decreases in manufacturing yields could result in an increase in our
costs and force us to allocate our available product supply among our customers.
Lower than expected yields could potentially harm customer relationships, our
reputation and our financial results.
We
are dependent on third parties for assembly, testing and packaging of our
products, which reduces our control over the delivery schedule and quantity of
our products.
Our
products are assembled, tested and packaged by independent subcontractors, such
as Advanced Semiconductor Engineering, Inc., Amkor Technology, JSI Logistics,
Ltd., King Yuan Electronics Co., Siliconware Precision Industries Co. Ltd., and
ChipPAC. As a result, we do not directly control our product delivery schedules,
product quantity, or product quality. All of these subcontractors
assemble, test and package products for other companies, including some of our
competitors. Since we do not have long-term agreements with our
subcontractors, when demand for subcontractors to assemble, test or package
products is high, our subcontractors may decide to prioritize the orders of
other customers over our orders. Since the time required to qualify a
different subcontractor to assemble, test or package our products can be
lengthy, if we have to find a replacement subcontractor we could experience
significant delays in shipments of our products, product shortages, a decrease
in the quality of our products, or an increase in product cost. Any product
shortages or quality assurance problems could increase the costs of manufacture,
assembly or testing of our products, which could cause our gross margin and
revenue to decline.
Failure
to transition to new manufacturing process technologies could adversely affect
our operating results and gross margin.
We use
the most advanced manufacturing process technology appropriate for our products
that is available from our third-party foundries. As a result, we continuously
evaluate the benefits of migrating our products to smaller geometry process
technologies in order to improve performance and reduce costs. We believe this
strategy will help us remain competitive. Our current product
families are manufactured using 0.15 micron, 0.14 micron, 0.13 micron, 0.11
micron, 90 nanometer and 65 nanometer process
technologies. Manufacturing process technologies are subject to
rapid change and require significant expenditures for research and development,
which could negatively impact our operating expenses and gross
margin.
We have
experienced difficulty in migrating to new manufacturing processes in the past
and, consequently, have suffered reduced yields, delays in product deliveries
and increased expense levels. We may face similar difficulties, delays and
expenses as we continue to transition our new products to smaller geometry
processes. Moreover, we are dependent on our third-party manufacturers to
migrate to smaller geometry processes successfully. Some of our competitors own
their manufacturing facilities and may be able to move to a new state of the art
manufacturing process more quickly than our manufacturing
partners. For example, Intel recently released a 45 nanometer
chip for desktop computers which it is manufacturing in its
foundries. If our suppliers fall behind our competitors in
manufacturing processes, the development and customer demand for our products
and the use of our products could be negatively impacted. The inability by us or
our third-party manufacturers to effectively and efficiently transition to new
manufacturing process technologies may adversely affect our operating results
and our gross margin.
We
rely on third-party vendors to supply software development tools to us for the
development of our new products and we may be unable to obtain the tools
necessary to develop or enhance new or existing products.
We rely
on third-party software development tools to assist us in the design, simulation
and verification of new products or product enhancements. To bring new products
or product enhancements to market in a timely manner, or at all, we need
software development tools that are sophisticated enough or technologically
advanced enough to complete our design, simulations and
verifications. In the past, we have experienced delays in the
introduction of products as a result of the inability of then available software
development tools to fully simulate the complex features and functionalities of
our products. In the future, the design requirements necessary to meet consumer
demands for more features and greater functionality from our products may exceed
the capabilities of available software development
tools. Unavailability of software development tools may result in our
missing design cycles or losing design wins either of which could result in a
loss of market share or negatively impact our operating results.
Because
of the importance of software development tools to the development and
enhancement of our products, a critical component of our product development
efforts is our partnerships with leaders in the computer-aided design industry,
including Cadence Design Systems, Inc. and Synopsys, Inc. We have invested
significant resources to develop relationships with these industry leaders and
have often assisted them in the definition of their new products. We believe
that forming these relationships and utilizing next-generation development tools
to design, simulate and verify our products will help us remain at the forefront
of the 3D graphics, communications and networking segments and develop products
that utilize leading-edge technology on a rapid basis. If these relationships
are not successful, we may be unable to develop new products or product
enhancements in a timely manner, which could result in a loss of market share, a
decrease in revenue or negatively impact our operating results.
We sell our products to a small
number of customers and our business could suffer if we lose any of these
customers.
We have a
limited number of customers and our sales are highly concentrated. Sales to our
significant customers accounted for approximately 10% of our total revenue from
one customer during fiscal year 2008, 12% of our total revenue from one customer
during fiscal year 2007, and 26% of our total revenue from two customers during
fiscal year 2006. Although a small number of our other customers
represents the majority of our revenue, their end customers include a large
number of original equipment manufacturers, or OEMs, and system integrators
throughout the world who, in many cases, specify the graphics supplier. Our
sales process involves achieving key design wins with leading personal computer,
or PC, OEMs and major system builders and supporting the product design into
high volume production with key contract equipment manufacturers, or CEMs,
original design manufacturers, or ODMs, add-in board and motherboard
manufacturers. These design wins in turn influence the retail and system builder
channel that is serviced by CEMs, ODMs, add-in board and motherboard
manufacturers. Our distribution strategy is to work with a small number of
leading independent CEMs, ODMs, add-in board and motherboard manufacturers, and
distributors, each of which has relationships with a broad range of system
builders and leading PC OEMs. If we were to lose sales to our PC OEMs, CEMs,
ODMs, add-in board and motherboard manufacturers and were unable to replace the
lost sales with sales to different customers, they were to significantly reduce
the number of products they order from us, or we were unable to collect accounts
receivable from them, our revenue may not reach or exceed the expected level in
any period, which could harm our financial condition and our results of
operations.
Any difficulties
in collecting accounts receivable, including from foreign customers, could harm
our operating results and financial condition.
Our
accounts receivable are highly concentrated and make us vulnerable to adverse
changes in our customers' businesses, and to downturns in the industry and the
worldwide economy. Two customers accounted for approximately 21% and
23% of our accounts receivable balance at January 27, 2008 and
January 28, 2007, respectively.
Difficulties
in collecting accounts receivable or the loss of any significant customer could
materially and adversely affect our financial condition and results of
operations. We continue to work directly with more foreign customers and it may
be difficult to collect accounts receivable from them. We maintain an allowance
for doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. This allowance consists of an amount
identified for specific customers and an amount based on overall estimated
exposure. If the financial condition of our customers were to deteriorate,
resulting in an impairment in their ability to make payments, additional
allowances may be required, we may be required to defer revenue recognition on
sales to affected customers, and we may be required to pay higher credit
insurance premiums, any of which could adversely affect our operating results.
In the future, we may have to record additional reserves or write-offs and/or
defer revenue on certain sales transactions which could negatively impact our
financial results.
Risks
Related to Our Business and Products
Our
failure to estimate customer demand properly could adversely affect our
financial results.
Our
inventory purchases are based upon future demand forecasts or orders from our
customers and may not accurately predict the quantity or type of products that
our customers will want or will ultimately end up purchasing. In forecasting
demand, we make multiple assumptions any of which may prove to be incorrect.
Situations that may result in excess or obsolete inventory, which could result
in write-downs of the value of our inventory and/or a reduction in average
selling prices, and where our gross margin could be adversely affected
include:
·
|
if
there were a sudden and significant decrease in demand for our
products;
|
·
|
if
there were a higher incidence of inventory obsolescence because of rapidly
changing technology and customer
requirements;
|
·
|
if
we fail to estimate customer demand properly for our older products as our
newer products are introduced; or
|
·
|
if
our competition were to take unexpected competitive pricing
actions.
|
Conversely,
if we underestimate our customers’ demand for our products, our third party
manufacturing partners may not have adequate capacity to increase production for
us meaning that we may not be able to obtain sufficient inventory to fill our
customers’ orders on a timely basis. Even if we are able to increase production
levels to meet customer demand, we may not be able to do so in a cost effective
or timely manner. Inability to fulfill our customers’ orders on a timely basis,
or at all, could damage our customer relationships, result in lost revenue,
cause a loss in market share, impact our customer relationships or damage our
reputation, any of which could adversely impact our business.
Because
we order products or materials in advance of anticipated customer demand our
ability to reduce our inventory purchase commitments quickly in response to
lower than expected demand is limited.
We
manufacture our products based on forecasts of customer demand in order to have
shorter shipment lead times for our customers. As a result, we may
build inventories for anticipated periods of growth which do not occur or may
build inventory anticipating demand for a product that does not
materialize. Any inability to sell products to which we have devoted
resources could harm our business. In addition, cancellation or deferral of
customer purchase orders could result in our holding excess inventory, which
could adversely affect our gross margin and restrict our ability to fund
operations. Additionally, because we often sell a substantial portion of our
products in the last month of each quarter, we may not be able to reduce our
inventory purchase commitments in a timely manner in response to customer
cancellations or deferrals. We could be subject to excess or obsolete
inventories and be required to take corresponding inventory write-downs if
growth slows or does not materialize or if we incorrectly forecast product
demand, which could negatively impact our financial
results.
Our
business results could be adversely affected if our product development efforts
are unsuccessful.
In the
past, we have experienced delays in the development of new products. Any delay
or failure of our GPUs, our other products, or other technologies to meet or
exceed specifications of our customers or competitive products could materially
harm our business if customers do not buy our products. The success of our new
product introductions will depend on many factors, including the
following:
·
|
proper
new product definition;
|
·
|
timely
completion and introduction of new product
designs;
|
·
|
availability
of next-generation software development tools to design, simulate and
verify our products;
|
·
|
our
dependence on third-parties to effectively manufacture, assemble, test and
package our new products in a timely manner while maintaining product
quality;
|
·
|
differentiation
of new products from those of our
competitors;
|
·
|
market
acceptance of our products and our customers' products;
and
|
·
|
availability
of adequate quantity and configurations of various types of memory
products.
|
Our
failure to successfully develop, introduce or achieve market acceptance for new
processors or other technologies could impact our revenue, gross margin and
other financial results.
Our
failure to identify new market or product opportunities or to develop new
products could harm our business.
As our
GPUs and other processors develop and competition increases, we anticipate that
product life cycles at the high end will remain short and average selling prices
will decline. In particular, we expect average selling prices and gross margins
for our processors to decline as each product matures and as unit volume
increases. As a result, we will need to introduce new products and enhancements
to existing products to maintain or improve overall average selling prices and
our gross margin. In order for our processors to achieve high volumes, leading
PC OEMs, ODMs, and add-in board and motherboard manufacturers must select our
processors for design into their products, and then successfully complete the
designs of their products and sell them. We may be unable to successfully
identify new product opportunities or to develop and bring to market new
products in a timely fashion. Additionally, we cannot guarantee that new
products we develop will be selected for design into PC OEMs’, ODMs’, or add-in
board and motherboard manufacturers’ products, that any new designs will be
successfully completed, or that any new products will be sold.
As the
complexity of our products and the manufacturing process for our products
increases, there is an increasing risk that we will experience problems with the
performance of our products and that there will be delays in the development,
introduction or volume shipment of our products. We may experience difficulties
related to the production of current or future products or other factors that
may delay the introduction or volume sale of new products we develop. In
addition, we may be unable to successfully manage the production transition
risks with respect to future products. Failure to achieve any of the foregoing
with respect to future products or product enhancements could result in rapidly
declining average selling prices, reduced margins and reduced demand for
products or loss of market share. In addition, products or technologies
developed by others may render our processors non-competitive or obsolete or
result in our holding excess inventory, which would harm our
business.
If
we are unable to achieve design wins, our products may not be adopted by our
target markets or customers either of which could negatively impact our
financial results.
The
success of our business depends to a significant extent on our ability to
develop new competitive products for our target markets and customers. We
believe achieving design wins, which entails having our existing and future
products chosen for hardware components or subassemblies designed by OEMs, ODMs,
add-in board and motherboard manufacturers, are an integral part of our future
success. Our OEM, ODM, and add-in board and motherboard manufacturers’ customers
typically introduce new system configurations as often as twice per year,
typically based on spring and fall design cycles or in connection with trade
shows. Accordingly, when our customers are making their design decisions, our
existing products must have competitive performance levels or we must timely
introduce new products in order to be included in our customers’ new system
configurations. This requires that we:
·
|
anticipate
the features and functionality that customers and consumers will demand;
|
·
|
incorporate
those features and functionalities into products that meet the exacting
design requirements of our customers;
|
·
|
price
our products competitively; and
|
·
|
introduce
products to the market within our customers’ limited design cycles.
|
If OEMs,
ODMs, and add-in board and motherboard manufacturers do not include our products
in their systems, they will typically not use our products in their systems
until at least the next design configuration. Therefore, we endeavor to develop
close relationships with our OEMs and ODMs, in an attempt to better anticipate
and address customer needs in new products so that we will achieve design
wins.
Our
ability to achieve design wins also depends in part on our ability to identify
and be compliant with evolving industry standards. Unanticipated changes in
industry standards could render our products incompatible with products
developed by major hardware manufacturers and software developers like Advanced
Micro Devices Inc., or AMD, Intel and Microsoft Corporation, or
Microsoft. If our products are not in compliance with prevailing
industry standards, we may not be designed into our customers’ product
designs. However, to be compliant with changes to industry standards,
we may have to invest significant time and resources to redesign our products
which could negatively impact our gross margin or operating results. If we are
unable to achieve new design wins for existing or new customers, we may lose
market share and our operating results would be negatively
impacted.
We
may have to invest more resources in research and development than anticipated,
which could increase our operating expenses and negatively impact our operating
results.
If new
competitors, technological advances by existing competitors, our entry into new
markets, or other competitive factors require us to invest significantly greater
resources than anticipated in our research and development efforts, our
operating expenses would increase. We have increased our engineering and
technical resources and had 3,255, 2,668 and 1,654 full-time employees engaged
in research and development as of January 27, 2008, January 28, 2007 and January
29, 2006, respectively. Research and development expenditures were
$691.6 million, $553.5 million and $357.1 million for fiscal years 2008, 2007
and 2006, respectively. Research and development expenses included
non-cash stock-based compensation expense of $76.6 million and $70.1 million in
fiscal years 2008 and 2007, respectively, related to non-cash stock based
compensation, which we began to record in the first quarter of fiscal year 2007
as a result of our adoption of SFAS No. 123(R). If we are required to invest
significantly greater resources than anticipated in research and development
efforts without an increase in revenue, our operating results could decline.
Research and development expenses are likely to fluctuate from time to time to
the extent we make periodic incremental investments in research and development
and these investments may be independent of our level of revenue which could
negatively impact our financial results. In order to remain competitive, which
may include entering new markets, we anticipate that we will continue to devote
substantial resources to research and development, and we expect these expenses
to increase in absolute dollars in the foreseeable future due to the increased
complexity and the greater number of products under development as well as
hiring additional employees.
If
our products contain significant defects our financial results could be
negatively impacted, our reputation could be damaged and we could lose market
share.
Our
products are complex and may contain defects or experience failures when first
introduced or when we release new versions or enhancements. Past products have
and future products or enhancements may contain defects, errors or
bugs. Our products typically only go through one verification cycle prior
to volume production and distribution. As a result, our products may
contain undetected defects or flaws prior to volume production and
distribution. If any of our products or technologies contains a
defect, compatibility issue or other error, we may have to invest additional
research and development efforts to find and correct the issue. Such
efforts could divert our management’s and engineers’ attention from the
development of new products and technologies and could increase our operating
costs and gross margin. Additionally, an error or defect in new products or
releases or related software drivers after commencement of commercial shipments
could result in failure to achieve market acceptance or loss of design
wins. Also, we may be required to reimburse customers for costs to repair
or replace the products in the field, which could cause our revenue to
decline. A product recall or a significant number of product returns could
be expensive, damage our reputation, or result in our customers working with our
competitors. Costs associated with correcting defects, errors, bugs or
other issues could be significant and could materially harm our financial
results.
Because
our gross margin for any period depends on a number of factors, our failure to
forecast changes in any of these factors could adversely affect our gross
margin.
We
continue to pursue improved gross margin. Our gross margin for any period
depends on a number of factors, including:
·
|
the
mix of our products sold;
|
·
|
average
selling prices;
|
·
|
introduction
of new products;
|
·
|
unexpected
pricing actions by our competitors;
|
·
|
the
cost of product components; and
|
·
|
the
yield of wafers produced by the foundries that manufacture our
products.
|
If we do
not correctly forecast the impact of any of the relevant factors on our
business, we may not be able to take action in time to counteract any negative
impact on our gross margin. In addition, if we are unable to meet our gross
margin target for any period or the target set by analysts, the trading price of
our common stock may decline.
We
may not be able to realize the potential financial or strategic benefits of
business acquisitions or strategic investments, which could hurt our ability to
grow our business, develop new products or sell our products.
We
have acquired and invested in other businesses that offered products, services
and technologies that we believe will help expand or enhance our existing
products and business. We may enter into future acquisitions of, or investments
in, businesses, in order to complement or expand our current businesses or enter
into a new business market. Negotiations associated with an acquisition or
strategic investment could divert management’s attention and other company
resources. Any of the following risks associated with past or future
acquisitions or investments could impair our ability to grow our business,
develop new products, our ability to sell our products, and ultimately could
have a negative impact on our growth or our financial results:
·
|
difficulty
in combining the technology, products, operations or workforce of the
acquired business with our
business;
|
·
|
difficulty
in operating in a new or multiple new
locations;
|
·
|
disruption
of our ongoing businesses;
|
·
|
disruption
of the ongoing business of the company we invest in or
acquire;
|
·
|
difficulty
in realizing the potential financial or strategic benefits of the
transaction;
|
·
|
difficulty
in maintaining uniform standards, controls, procedures and
policies;
|
·
|
disruption
of or delays in ongoing research and development
efforts;
|
·
|
diversion
of capital and other resources;
|
·
|
assumption
of liabilities;
|
·
|
diversion
of resources and unanticipated expenses resulting from litigation
arising from potential or actual business acquisitions or
investments;
|
·
|
difficulties
in entering into new markets in which we have limited or no experience and
where competitors in such markets have stronger positions;
and
|
·
|
impairment
of relationships with employees and customers, or the loss of any of our
key employees or customers of our target’s key employees or customers, as
a result of our acquisition or
investment.
|
In
addition, the consideration for any future acquisition could be paid in cash,
shares of our common stock, the issuance of convertible debt securities or a
combination of cash, convertible debt and common stock. If we make an investment
in cash or use cash to pay for all or a portion of an acquisition, our cash
reserves would be reduced which could negatively impact the growth of our
business or our ability to develop new products. However, if we pay the
consideration with shares of common stock, or convertible debentures, the
holdings of our existing stockholders would be diluted. We cannot forecast the
number, timing or size of future strategic investments or acquisitions, or the
effect that any such investments or acquisitions might have on our operations or
financial results.
We
are dependent on key employees and the loss of any of these employees could
negatively impact our business.
Our
future success and ability to compete is substantially dependent on our ability
to identify, hire, train and retain highly qualified key
personnel. The market for key employees in the semiconductor industry
can be competitive. None of our key employees is bound by an
employment agreement, meaning our relationships with all of our key employees
are at will. The loss of the services of any of these employees without an
adequate replacement or our inability to hire new employees as needed could
delay our product development efforts, harm our ability to sell our products or
otherwise negatively impact our business.
Our
operating expenses are relatively fixed and we may not be able to reduce
operating expenses quickly in response to any revenue shortfalls.
Our
operating expenses, which are comprised of research and development expenses and
sales, general and administrative expenses, represented 25%, 28% and 24% of our
total revenue during fiscal years 2008, 2007 and 2006,
respectively. Operating expenses included non-cash stock-based
compensation expense of $122.5 million and $108.5 million in fiscal years 2008
and 2007, respectively, related to non-cash stock based compensation which we
began to record in the first quarter of fiscal year 2007 as a result of our
adoption of Statement of Financial Accounting Standards No. 123(R), or SFAS No.
123(R), Share-Based
Payment. Since
we often recognize a substantial portion of our revenue in the last month of
each quarter, we may not be able to adjust our operating expenses in a timely
manner in response to any unanticipated revenue shortfalls. Further, some of our
operating expenses, like non-cash stock-based compensation expense can only be
adjusted over a longer period of time and cannot be reduced during a
quarter. If we are unable to reduce operating expenses quickly in
response to any revenue shortfalls, our financial results would be negatively
impacted.
Expensing
employee stock options materially and adversely affects our reported operating
results and could also adversely affect our competitive position.
Since
inception, we have used stock options and our employee stock purchase program as
fundamental components of our compensation packages. We believe that these
incentives directly motivate our employees and, through the use of vesting,
encourage our employees to remain with us. As a result of adjustments
arising from our restatement related to stock option grant dates, our operating
results for fiscal years prior to fiscal year 2007 contain recorded amounts of
stock-based compensation expense. For our fiscal years 2000 through 2006, this
stock-based compensation expense was calculated using primarily the intrinsic
value-based method under Accounting Principles Board Opinion No. 25, or APB 25,
Accounting for Stock Issued to
Employees and related interpretations.
In
December 2004, the Financial Accounting Standards Board, or FASB,
issued SFAS No. 123(R) which requires the measurement and recognition
of compensation expense for all stock-based compensation payments. SFAS
No. 123(R) requires that we record compensation expense for stock options and
our employee stock purchase plan using the fair value of those awards. During
the fiscal years 2008 and 2007 we recorded $133.4 million and $116.7 million,
respectively, related to non-cash stock-based compensation, resulting from our
compliance with SFAS No. 123(R), which negatively impacted our operating
results. We believe that SFAS No. 123(R) will continue to negatively impact our
operating results.
To the
extent that SFAS No. 123(R) makes it more expensive to grant stock options or to
continue to have an employee stock purchase program, we may decide to incur
increased cash compensation costs. In addition, actions that we may take to
reduce stock-based compensation expense that may be more severe than any actions
our competitors may implement and may make it difficult to attract retain and
motivate employees, which could adversely affect our competitive position as
well as our business and operating results.
We
may be required to record a charge to earnings if our goodwill or amortizable
intangible assets become impaired, which could negatively impact our operating
results.
Under
accounting principles generally accepted in the United States, we review our
amortizable intangible assets and goodwill for impairment when events or changes
in circumstances indicate the carrying value may not be recoverable. Goodwill is
tested for impairment at least annually. The carrying value of our goodwill or
amortizable assets may not be recoverable due to factors such as a decline in
stock price and market capitalization, reduced estimates of future cash flows
and slower growth rates in our industry or in any of our business units.
Estimates of future cash flows are based on an updated long-term financial
outlook of our operations. However, actual performance in the near-term or
long-term could be materially different from these forecasts, which could impact
future estimates. For example, if one of our business units does not meet its
near-term and longer-term forecasts, the goodwill assigned to the business unit
could be impaired. We may be required to record a charge to earnings in our
financial statements during a period in which an impairment of our goodwill or
amortizable intangible assets is determined to exist, which may negatively
impact our results of operations.
Our
operating results are unpredictable and may fluctuate, and if our operating
results are below the expectations of securities analysts or investors, the
trading price of our stock could decline.
Many of
our revenue components fluctuate and are difficult to predict, and our operating
expenses are largely independent of revenue. Therefore, it is difficult for us
to accurately forecast revenue and profits or losses in any particular
period.
Any one
or more of the risks discussed in this Form 10-K or other factors could prevent
us from achieving our expected future revenue or net income. Accordingly, we
believe that period-to-period comparisons of our results of operations should
not be relied upon as an indication of future performance. Similarly, the
results of any quarterly or full fiscal year period are not necessarily
indicative of results to be expected for a subsequent quarter or a full fiscal
year.
As a
result, it is possible that in some quarters our operating results could be
below the expectations of securities analysts or investors, which could cause
the trading price of our common stock to decline. We believe that our quarterly
and annual results of operations may continue to be affected by a variety of
factors that could harm our revenue, gross profit and results of
operations.
Risks
related to Market Conditions
We
are exposed to fluctuations in the market values of our portfolio investments
and in interest rates.
At
January 27, 2008 and January 28, 2007, we had $1.81 billion and $1.12 billion,
respectively, in cash, cash equivalents and marketable securities. We
invest in a variety of financial instruments, consisting principally of cash and
cash equivalents, asset-backed securities, commercial paper, mortgage-backed
securities issued by Government-sponsored enterprises, equity securities, money
market funds and highly liquid debt securities of corporations, municipalities
and the United States government and its agencies. As of January 27, 2008,
we did not have any investments in auction-rate preferred securities. These
investments are denominated in United States dollars.
We
account for our investment instruments in accordance with Statement of Financial
Accounting Standards No. 115, or SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. All of the cash equivalents and marketable
securities are treated as “available-for-sale” under SFAS No. 115. Investments
in both fixed rate and floating rate interest earning instruments carry a degree
of interest rate risk. Fixed rate debt securities may have their market value
adversely impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates fall. Due in
part to these factors, our future investment income may fall short of
expectations due to changes in interest rates or if the decline in fair value of
our publicly traded debt or equity investments is judged to be
other-than-temporary. We may suffer losses in principal if we are forced to sell
securities that decline in market value due to changes in interest rates.
However, because any debt securities we hold are classified as
“available-for-sale,” no gains or losses are realized in income statement
due to changes in interest rates unless such securities are sold prior to
maturity or unless declines in value are determined to be
other-than-temporary. These securities are reported at fair value with the
related unrealized gains and losses included in accumulated other comprehensive
income, a component of stockholders’ equity, net of tax.
Recent
U.S. sub-prime mortgage defaults have had a significant impact across various
sectors of the financial markets, causing global credit and liquidity issues.
The short-term funding markets experienced issues during the third and fourth
quarter of calendar 2007, leading to liquidity disruption in the market. If the
global credit market continues to deteriorate, our investment portfolio may be
impacted and we could determine some of our investments are impaired, which
could adversely impact our financial results. As of January 27, 2008, we did not
have any issuer concentration in excess of 10% of our investment portfolio.
However, our investments in the financial sector and government agencies
accounted for approximately 46% and 22%, respectively, of our total investment
portfolio. If the fair value of our investments in these sectors was to decline
by 2%-5%, it would result in changes in fair market values for these investments
by approximately $22-$54 million.
We
are subject to risks associated with international operations which may harm our
business.
We
conduct our business worldwide. Our semiconductor wafers are
manufactured, assembled, tested and packaged by third-parties located outside of
the United States. We generated 89%, 86% and 84% of total revenues for fiscal
years 2008, 2007 and 2006, respectively, from sales to customers outside the
United States and other Americas. As of January 27, 2008, we had offices in
twelve countries outside of the United States. The manufacture,
assembly, test and packaging of our products outside of the United States,
operation of offices outside of the United States, and sales to customers
internationally subjects us to a number of risks, including:
·
|
international
economic and political conditions, such as political tensions between
countries in which we do business;
|
·
|
unexpected
changes in, or impositions of, legislative or regulatory requirements;
|
·
|
complying
with a variety of foreign laws;
|
·
|
differing
legal standards with respect to protection of intellectual property and
employment practices;
|
·
|
cultural
differences in the conduct of
business;
|
·
|
inadequate
local infrastructure that could result in business
disruptions;
|
·
|
exporting
or importing issues related to export or import restrictions, tariffs,
quotas and other trade barriers and
restrictions;
|
·
|
financial
risks such as longer payment cycles, difficulty in collecting accounts
receivable and fluctuations in currency exchange
rates;
|
·
|
imposition
of additional taxes and
penalties; and
|
·
|
other
factors beyond our control such as terrorism, civil unrest, war and
diseases such as severe acute respiratory syndrome and the Avian flu.
|
If sales
to any of our customers outside of the United States and other Americas are
delayed or cancelled because of any of the above factors, our revenue may be
negatively impacted.
Our
international operations in Australia, Taiwan, Japan, Korea, China, Hong Kong,
India, France, Russia, Germany, Finland and the United Kingdom are subject to
many of the above listed risks. We intend to continue to expand our existing
operations and expect to open other international offices. Difficulties with our
international operations, including finding appropriate staffing and office
space, may divert management’s attention and other resources any of which could
negatively impact our operating results.
The
economic conditions in our primary overseas markets, particularly in Asia, may
negatively impact the demand for our products abroad. All of our international
sales to date have been denominated in United States dollars. Accordingly,
an increase in the value of the United States dollar relative to foreign
currencies could make our products less competitive in international markets or
require us to assume the risk of denominating certain sales in foreign
currencies. We anticipate that these factors will impact our business to a
greater degree as we further expand our international business
activities.
If
our products do not continue to be adopted by the desktop PC, notebook PC,
workstation, high-performance computing, PMP, PDA, cellular handheld devices,
and video game console markets or if the demand for new and innovative products
in these markets decreases, our business and operating results would
suffer.
Our
success depends in part upon continued broad adoption of our processors for 3D
graphics and multimedia in desktop PC, notebook PC, workstation,
high-performance computing, PMP, PDA, cellular handheld devices, and video game
console applications. The market for processors has been characterized by
unpredictable and sometimes rapid shifts in the popularity of products, often
caused by the publication of competitive industry benchmark results, changes in
pricing of dynamic random-access memory devices and other changes in the total
system cost of add-in boards, as well as by severe price competition and by
frequent new technology and product introductions. Broad market acceptance is
difficult to achieve and such market acceptance, if achieved, is difficult to
sustain due to intense competition and frequent new technology and product
introductions. Our GPU and MCP businesses together comprised of approximately
79%, 77% and 74% of revenue for fiscal years 2008, 2007 and 2006, respectively.
As such, our financial results would suffer if for any reason our current or
future GPUs or MCPs do not continue to achieve widespread adoption by the PC
market. If we are unable to complete the timely development of new products or
if we were unable to successfully and cost-effectively manufacture and deliver
products that meet the requirements of the desktop PC, notebook PC, workstation,
high-performance computing, PMP, PDA, cellular phone, and video game console
markets, we may experience a decrease in revenue which could negatively impact
our operating results.
Additionally,
there can be no assurance that the industry will continue to demand new products
with improved standards, features or performance. If our customers, OEMs, ODMs,
add-in-card and motherboard manufacturers, system builders and consumer
electronics companies, do not continue to design products that require more
advanced or efficient processors and/or the market does not continue to demand
new products with increased performance, features, functionality or standards,
sales of our products could decline. Decreased sales of our products for these
markets could negatively impact our revenue and our financial
results.
We
are dependent on the PC market and its rate of growth in the future may have a
negative impact on our business.
We derive
and expect to continue to derive the majority of our revenue from the sale
or license of products for use in the desktop PC and notebook PC markets,
including professional workstations. A reduction in sales of PCs, or a reduction
in the growth rate of PC sales, may reduce demand for our products. These
changes in demand could be large and sudden. Since PC manufacturers often build
inventories during periods of anticipated growth, they may be left with excess
inventories if growth slows or if they incorrectly forecast product transitions.
In these cases, PC manufacturers may abruptly suspend substantially all
purchases of additional inventory from suppliers like us until their excess
inventory has been absorbed, which would have a negative impact on our financial
results.
Our
business is cyclical in nature and an industry downturn could harm our financial
results.
Our
business is directly affected by market conditions in the highly cyclical
semiconductor industry, including alternating periods of overcapacity and
capacity constraints, variations in manufacturing costs and yields, significant
expenditures for capital equipment and product development, and rapid
technological change. If we are unable to respond to changes in our industry,
which can be unpredictable and rapid, in an efficient and timely manner, our
operating results could suffer. In particular, from time to time, the
semiconductor industry has experienced significant and sometimes prolonged
downturns characterized by diminished product demand, increased inventory levels
and accelerated erosion of average selling prices. If we cannot take appropriate
actions such as reducing our manufacturing or operating costs to sufficiently
offset declines in demand, increased inventories, or decreased selling prices
during a downturn, our revenue and operating results will suffer.
Risks
Related to Regulatory and other Legal Matters
The
United States Department of Justice’s pending investigation into the market
for graphics processors and the ongoing civil actions could adversely affect our
business.
On
November 29, 2006, we received a subpoena from the San Francisco Office of the
Antitrust Division of the United States Department of Justice, or DOJ, in
connection with the DOJ's investigation into potential antitrust violations
related to GPUs and cards. No specific allegations have been made against us. We
are cooperating with the DOJ in its investigation.
As of
March 5, 2008, 55 civil complaints have been filed against us. The majority of
the complaints were filed in the Northern District of California, several were
filed in the Central District of California, and other cases were filed in
several other Federal district courts. On April 18, 2007, the
Judicial Panel on Multidistrict Litigation transferred the actions currently
pending outside of the Northern District of California to the Northern District
of California for coordination of pretrial proceedings before the Honorable
William H. Alsup. By agreement of the parties, Judge Alsup will
retain jurisdiction over the consolidated cases through trial or other
resolution.
In the
consolidated proceedings, two groups of plaintiffs (one representing all direct
purchasers of graphic processing units, or GPUs, and the other representing all
indirect purchasers) filed consolidated, amended class-action complaints. These
complaints purport to assert federal antitrust claims based on alleged price
fixing, market allocation, and other alleged anti-competitive agreements between
us and ATI Technologies, Inc., or ATI and AMD, as a result of its acquisition of
ATI. The indirect purchasers’ consolidated amended complaint also
asserts a variety of state law antitrust, unfair competition and consumer
protection claims on the same allegations, as well as a common law claim for
unjust enrichment.
Plaintiffs
filed their first consolidated complaints on June 14, 2007. On July
16, 2007, we moved to dismiss those complaints. The motions to
dismiss were heard by Judge Alsup on September 20, 2007. The Court
subsequently granted and denied the motions in part, and gave the
plaintiffs leave to move to amend the complaints. On November 7,
2007, the Court granted plaintiffs’ motion to file amended complaints, ordered
defendants to answer the complaints, lifted a previously entered stay on
discovery, and set a trial date for January 12, 2009. Discovery is
underway and plaintiffs are currently required to file any motion for class
certification by April 24, 2008. We believe the allegations in
the complaints are without merit and intend to vigorously defend the
cases. Costs of defense and any damages resulting from a ruling
against us or a settlement of the litigation could adversely affect our
business.
The
matters relating to the Board’s review of our historical stock option granting
practices and the restatement of our consolidated financial statements have
resulted in litigation, which could harm our financial results.
On August
10, 2006, we announced that the Audit Committee of our Board, with the
assistance of outside legal counsel, was conducting a review of our stock option
practices covering the time from our initial public offering in 1999, our fiscal
year 2000, through June 2006. The Audit Committee reached the conclusion that
incorrect measurement dates were used for financial accounting purposes for
stock option grants in certain prior periods. As a result, we recorded
additional non-cash stock-based compensation expense, and related tax effects,
related to stock option grants.
The Audit
Committee’s review of our historic stock option practices identified a number of
occasions on which the measurement date used for financial accounting and
reporting purposes for stock options granted to certain of our employees was
different from the actual grant date. To correct these accounting errors, we
amended our Annual Report on Form 10-K for the year ended January 29, 2006 and
our Quarterly Report on Form 10-Q for the three months ended April 30, 2006 to
restate the consolidated financial statements contained in those
reports. This review of our historical stock option granting
practices and subsequent restatement required us to incur substantial expenses
for legal, accounting, tax and other professional services and diverted our
management’s attention from our business.
Additionally,
the review and the resulting restatement of our prior financial statements have
exposed us to greater risks associated with litigation. Ten derivative
complaints have been filed in state and federal court pertaining to allegations
relating to stock option grants. We cannot assure you that these or future
similar complaints, or any future litigation or regulatory action will result in
the same conclusions reached by the Audit Committee. On August 5, 2007, our
Board authorized the formation of a Special Litigation Committee to investigate,
evaluate, and make a determination as to how we should proceed with respect to
the claims and allegations asserted in the underlying derivative cases brought
on behalf of NVIDIA. Currently, the Special Litigation Committee’s
review is ongoing. The conduct and resolution of these matters will
be time consuming, expensive and could distract our management’s attention from
the conduct of our business. Furthermore, if we are subject to
adverse rulings, we could be required to pay damages or penalties or have other
remedies imposed upon us which could harm our business, financial condition,
results of operations and cash flows.
Our
ability to compete will be harmed if we are unable to adequately protect our
intellectual property.
We rely primarily on a combination of
patents, trademarks, trade secrets, employee and third-party nondisclosure
agreements, and licensing arrangements to protect our intellectual property in
the United States and internationally. We have numerous patents issued, allowed
and pending in the United States and in foreign jurisdictions. Our patents and
pending patent applications primarily relate to our products and the technology
used in connection with our products. We also rely on international treaties,
organizations and foreign laws to protect our intellectual property. The laws of
certain foreign countries in which our products are or may be manufactured or
sold, including various countries in Asia, may not protect our products or
intellectual property rights to the same extent as the laws of the United
States. This makes the possibility of piracy of our technology and products more
likely. We continuously assess whether and where to seek formal protection for
particular innovations and technologies based on such factors
as:
·
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the
commercial significance of our operations and our competitors’ operations
in particular countries and
regions;
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·
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the
location in which our products are manufactured;
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·
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our
strategic technology or product directions in different countries; and
|
·
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the
degree to which intellectual property laws exist and are meaningfully
enforced in different
jurisdictions.
|
Our
pending patent applications and any future applications may not be approved. In
addition, any issued patents may not provide us with competitive advantages or
may be challenged by third parties. The enforcement of patents by others may
harm our ability to conduct our business. Others may independently develop
substantially equivalent intellectual property or otherwise gain access to our
trade secrets or intellectual property. Our failure to effectively protect our
intellectual property could harm our business.
Litigation
to defend against alleged infringement of intellectual property rights or to
enforce our intellectual property rights and the outcome of such litigation
could result in substantial costs to us.
We expect
that as the number of issued hardware and software patents increases and as
competition intensifies, the volume of intellectual property infringement claims
and lawsuits may increase. We may become involved in lawsuits or other legal
proceedings alleging patent infringement or other intellectual property rights
violations by us or by our customers that we have agreed to indemnify them for
certain claims of infringement. An unfavorable ruling could include significant
damages, invalidation of a patent or family of patents, indemnification of
customers, payment of lost profits, or, when it has been sought, injunctive
relief.
In
addition, we may need to commence litigation or other legal proceedings in order
to:
·
|
assert
claims of infringement of our intellectual
property;
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·
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protect
our trade secrets or know-how; or
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·
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determine
the enforceability, scope and validity of the propriety rights of
others.
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If we
have to initiate litigation in order to protect our intellectual property, our
operating expenses may increase which could negatively impact our operating
results. Our failure to effectively protect our intellectual property could harm
our business.
If
infringement claims are made against us or our products are found to
infringe a third parties’ patent or intellectual property, we or one of our
indemnified customers may have to seek a license to the third parties’ patent or
other intellectual property rights. However, we may not be able to obtain
licenses at all or on terms acceptable to us particularly from our competitors.
If we or one of our indemnified customers is unable to obtain a license from a
third party for technology that we use or that is used in one of our products,
we could be subject to substantial liabilities or have to suspend or discontinue
the manufacture and sale of one or more of our products. We may also
have to make royalty or other payments, or cross license our technology. If
these arrangements are not concluded on commercially reasonable terms, our
business could be negatively impacted. Furthermore, the indemnification of a
customer may increase our operating expenses which could negatively impact our
operating results.
We
are a party to litigation, which, if determined adversely to us, could adversely
affect our cash flow and financial results.
We are a
party to litigation. There can be no assurance that any litigation to which we
are a party will be resolved in our favor. Any claim that is successfully
asserted against us may cause us to pay substantial damages, including punitive
damages, and other related fees. Regardless of whether lawsuits are resolved in
our favor or if we are the plaintiff or the defendant in the litigation, any
lawsuits to which we are a party will likely be expensive and time consuming to
defend or resolve. Such lawsuits could also harm our relationships with existing
customers and result in the diversion of management’s time and attention away
from business operations, which could harm our business. Costs of defense and
any damages resulting from litigation, a ruling against us, or a settlement of
the litigation could adversely affect our cash flow and financial
results.
Our
operating results may be adversely affected if we are subject to unexpected tax
liabilities.
We are
subject to taxation by a number of taxing authorities both in the United States
and throughout the world. Tax rates vary among the jurisdictions in which we
operate. Significant judgment is required in determining our provision for our
income taxes as there are many transactions and calculations where the ultimate
tax determination is uncertain. Although we believe our tax estimates are
reasonable, any of the below could cause our effective tax rate to be materially
different than that which is reflected in historical income tax provisions and
accruals:
·
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the
jurisdictions in which profits are determined to be earned and
taxed;
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·
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adjustments
to estimated taxes upon finalization of various tax
returns;
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·
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changes
in available tax credits;
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·
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changes
in share-based compensation
expense;
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·
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changes
in tax laws, the interpretation of tax laws either in the United States or
abroad or the issuance of new interpretative accounting guidance related
to uncertain transactions and calculations where the tax treatment was
previously uncertain; and
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·
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the
resolution of issues arising from tax audits with various tax
authorities.
|
Should
additional taxes be assessed as a result of any of the above, our operating
results could be adversely affected. In addition, our future effective tax rate
could be adversely affected by changes in the mix of earnings in countries with
differing statutory tax rates, changes in tax laws or changes in the
interpretation of tax laws.
Our
failure to comply with any applicable environmental regulations could result in
a range of consequences, including fines, suspension of production, excess
inventory, sales limitations, and criminal and civil liabilities.
We are
subject to various state, federal and international laws and regulations
governing the environment, including restricting the presence of certain
substances in electronic products and making producers of those products
financially responsible for the collection, treatment, recycling and disposal of
those products. For example, we are subject to the European Union Directive on
Restriction of Hazardous Substances Directive, or RoHS Directive, that restricts
the use of a number of substances, including lead, and other hazardous
substances in electrical and electronic equipment in the market in the European
Union. We could face significant costs and liabilities in
connection with the European Union Directive on Waste Electrical and Electronic
Equipment, or WEEE. The WEEE directs members of the European Union to enact
laws, regulations, and administrative provisions to ensure that producers of
electric and electronic equipment are financially responsible for the
collection, recycling, treatment and environmentally responsible disposal of
certain products sold into the market after August 15, 2005.
It is
possible that unanticipated supply shortages, delays or excess non-compliant
inventory may occur as a result of the RoHS Directive, WEEE, and other
domestic or international environmental regulations. Failure to comply with any
applicable environmental regulations could result in a range of consequences
including costs, fines, suspension of production, excess inventory, sales
limitations, criminal and civil liabilities and could impact our ability to
conduct business in the countries or states that have adopted these types of
regulations.
While we believe that we have
adequate internal control over financial reporting, if we or our independent
registered public accounting firm determines that we do not, our reputation may
be adversely affected and our stock price may decline.
Section 404
of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our
independent registered public accounting firm to audit the effectiveness of our
internal control structure and procedures for financial reporting. We have an
ongoing program to perform the system and process evaluation and testing
necessary to comply with these requirements. However, the manner in which
companies and their independent public accounting firms apply these requirements
and testing companies’ internal controls, remains subject to some judgment. To
date, we have incurred, and we expect to continue to incur increased expense and
to devote additional management resources to Section 404 compliance.
Despite our efforts, if we identify a material weakness in our internal
controls, there can be no assurance that we will be able to remediate that
material weakness in a timely manner, or that we will be able to maintain all of
the controls necessary to determine that our internal control over financial
reporting is effective. In the event that our chief executive officer, chief
financial officer or our independent registered public accounting firm determine
that our internal control over financial reporting is not effective as defined
under Section 404, investor perceptions of us may be adversely affected and
could cause a decline in the market price of our stock.
Changes in financial accounting
standards or interpretations of existing standards could affect our reported
results of operations.
We prepare our
consolidated financial statements in conformity with generally accepted
accounting principles in the United States. These principles are
constantly subject to review and interpretation by the Securities and Exchange
Commission, or, SEC, and various bodies formed to interpret and create
appropriate accounting principles. A change in these principles can have a
significant effect on our reported results and may even retroactively affect
previously reported transactions.
Provisions in our certificate of
incorporation, our bylaws and our agreement with Microsoft could delay or
prevent a change in control.
Our
certificate of incorporation and bylaws contain provisions that could make it
more difficult for a third party to acquire a majority of our outstanding voting
stock. These provisions include the following:
·
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the
ability of our Board to create and issue preferred stock without prior
stockholder approval;
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·
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the
prohibition of stockholder action by written
consent;
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·
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a
classified Board; and
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·
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advance
notice requirements for director nominations and stockholder
proposals.
|
On March
5, 2000, we entered into an agreement with Microsoft in which we agreed to
develop and sell graphics chips and to license certain technology to Microsoft
and its licensees for use in the Xbox. Under the agreement, if an individual or
corporation makes an offer to purchase shares equal to or greater than 30% of
the outstanding shares of our common stock, Microsoft may have first and last
rights of refusal to purchase the stock. The Microsoft provision and the other
factors listed above could also delay or prevent a change in control of
NVIDIA.
None.
Our headquarters complex
is located on a leased site in Santa Clara, California and is comprised of six
buildings. Additionally, we lease three other buildings in Santa Clara with one
used as warehouse space and the other two used as lab space. Outside of Santa
Clara, we lease space in Austin and Houston, Texas; Berkeley, California;
Beaverton, Oregon; Bedford, Massachusetts; Bellevue and Kirkland, Washington;
Madison, Alabama; Durham, North Carolina; Greenville, South Carolina; and Fort
Collins, Colorado. These facilities are used as design centers and/or sales and
administrative offices.
Outside of the United
States, we lease space in Hsin Chu City and Taipei, Taiwan; Tokyo, Japan; Seoul,
Korea; Beijing, Shanghai, and Shenzhen, China; Wanchai, and Shatin, New
Territories, Hong Kong; Bangalore, Hyderabad, Mumbai and Pune, India; Paris,
France; Moscow, Russia; Berlin, Munich and Wurselen, Germany; Helsinki, Finland
and Theale and London, United Kingdom; Melbourne, Australia. These facilities
are used primarily to support our customers and operations and as sales and
administrative offices. The office lease spaces in Wurselen, Germany, Shenzhen
and Shanghai, China and Bangalore, Pune and Hyderabad, India are used primarily
as design centers. Additionally, we own the building in Hyderabad, India, which
is being used primarily as a design center.
Subsequent to the end of fiscal
year 2008, on February 14, 2008, we closed escrow on a purchase of property that
includes approximately 25 acres of land and ten commercial buildings in Santa
Clara, California for approximately $150.0 million.
We believe that we
currently have sufficient facilities to conduct our operations for the next
twelve months, although we expect to lease additional facilities throughout the
world as our business requires. For additional information regarding obligations
under leases, see Note 12 of the Notes to the Consolidated Financial Statements
under the subheading “Lease Obligations,” which information is hereby
incorporated by reference.
3dfx
On
December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries
entered into an Asset Purchase Agreement, or APA, to purchase certain graphics
chip assets from 3dfx which closed on April 18, 2001.
In May 2002, we were
served with a California state court complaint filed by the landlord of 3dfx’s
San Jose, California commercial real estate lease, Carlyle Fortran Trust, or
Carlyle. In December 2002, we were served with a California state court
complaint filed by the landlord of 3dfx’s Austin, Texas commercial real estate
lease, CarrAmerica Realty Corporation. The landlords’ complaints both asserted
claims for, among other things, interference with contract, successor liability
and fraudulent transfer. The landlords’ sought to recover money damages,
including amounts owed on their leases with 3dfx in the aggregate amount of
approximately $15 million. In October 2002, 3dfx filed for Chapter 11 bankruptcy
protection in the United States Bankruptcy Court for the Northern District of
California. In January 2003, the landlords’ actions were removed to the United
States Bankruptcy Court for the Northern District of California and
consolidated, for purposes of discovery, with a complaint filed against NVIDIA
by the Trustee in the 3dfx bankruptcy case. Upon motion by NVIDIA in 2005, the
District Court withdrew the reference to the Bankruptcy Court for the landlords’
actions, which were removed to the United States District Court for the Northern
District of California. The Trustee’s lawsuit remained in the Bankruptcy
Court. On November 10, 2005, the District Court granted our motion to
dismiss the landlords’ respective amended complaints and allowed the landlords
until February 4, 2006 to amend their complaints. The landlords re-filed claims
against NVIDIA in early February 2006, and NVIDIA again filed motions requesting
the District Court to dismiss those claims. On September 29, 2006, the District
Court dismissed the CarrAmerica action in its entirety and without leave to
amend. The District Court found, among other things, that CarrAmerica lacked
standing to bring the lawsuit and that standing rests exclusively with the
bankruptcy Trustee. On October 27, 2006, CarrAmerica filed a notice of appeal
from that order. On December 15, 2006, the District Court also dismissed the
Carlyle action in its entirety, finding that Carlyle also lacked standing to
pursue its claims, and that certain claims were substantively
unmeritorious. Carlyle filed a notice of appeal from that order on
January 9, 2007. Both landlords’ appeals are pending before the
United States Court of Appeals for the Ninth Circuit, and briefing on both
appeals has been consolidated. NVIDIA has filed motions to recover its
litigation costs and attorneys fees against both Carlyle and CarrAmerica. The
District Court has postponed consideration of those motions until after the
appeals are resolved.
In March
2003, we were served with a complaint filed by the Trustee appointed by the
Bankruptcy Court to represent 3dfx’s bankruptcy estate. The Trustee’s complaint
asserts claims for, among other things, successor liability and fraudulent
transfer and seeks additional payments from us. On October 13, 2005, the
Bankruptcy Court held a hearing on the Trustee’s motion for summary
adjudication. On December 23, 2005, the Bankruptcy Court denied the Trustee’s
Motion for Summary Adjudication in all material respects and held that NVIDIA
may not dispute that the value of the 3dfx transaction was less than $108.0
million. The Bankruptcy Court denied the Trustee’s request to find that the
value of the 3dfx assets conveyed to NVIDIA was at least $108.0 million. In
early November 2005, after several months of mediation, NVIDIA and the Official
Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan
of Liquidation of 3dfx, which included a conditional settlement of the Trustee’s
claims against us. This conditional settlement was subject to a confirmation
process through a vote of creditors and the review and approval of the
Bankruptcy Court after notice and hearing. The conditional settlement called for
a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the
settlement, $5.6 million related to various administrative expenses and Trustee
fees, and $25.0 million related to the satisfaction of debts and liabilities
owed to the general unsecured creditors of 3dfx. Accordingly, during the three
month period ended October 30, 2005, we recorded $5.6 million as a charge to
settlement costs and $25.0 million as additional purchase price for
3dfx. The Trustee advised that he intended to object to the
settlement. However, the conditional settlement never progressed substantially
through the confirmation process.
On
December 21, 2005, the Bankruptcy Court determined that it would schedule trial
of one portion of the Trustee’s case against NVIDIA. On January 2, 2007, NVIDIA
exercised its right to terminate the settlement agreement on grounds that the
Bankruptcy Court had failed to proceed toward confirmation of the Creditors’
Committee’s plan. A non-jury trial began on March 21, 2007 on valuation issues
in the Trustee's constructive fraudulent transfer claims against NVIDIA.
Specifically, the Bankruptcy Court tried four questions: (1) what did 3dfx
transfer to NVIDIA in the APA?; (2) of what was transferred, what qualifies as
"property" subject to the Bankruptcy Court's avoidance powers under the Uniform
Fraudulent Transfer Act and relevant bankruptcy code provisions?; (3) what is
the fair market value of the "property" identified in answer to question (2)?;
and (4) was the $70 million that NVIDIA paid "reasonably equivalent" to the fair
market value of that property? At the conclusion of the evidence, the Bankruptcy
Court asked the parties to submit post-trial briefing. That briefing was
completed on May 25, 2007, and the Bankruptcy Court’s decision is still
pending.
Following
the Trustee’s filing of a Form 8-K on behalf of 3dfx, in which the Trustee
disclosed the terms of the conditional settlement agreement between NVIDIA and
the Creditor’s Committee, certain shareholders of 3dfx filed a petition with the
Bankruptcy Court to appoint an official committee to represent the claimed
interests of 3dfx shareholders. That petition was granted and an Equity Holders’
Committee was appointed. Since that appointment, the Equity Holders’ Committee
has filed a competing plan of reorganization/liquidation. The Equity Holders’
Committee’s plan assumes that 3dfx can raise additional equity capital that
would be used to retire all of 3dfx’s debts. The Equity Holders’ Committee
contends that the commitment by an investor to pay in equity capital is
sufficient to trigger NVIDIA's obligations under the APA to pay the stock
consideration. NVIDIA contends, among other things, that such a
commitment is not sufficient and that its obligation to pay the stock
consideration has been extinguished. By virtue of stock splits since the
execution of the APA, the stock consideration would now total six million shares
of NVIDIA common stock. The Equity Holders’ Committee filed a motion with the
Bankruptcy Court seeking an order giving it standing to bring a lawsuit to
obtain the stock consideration. Over our objection, the Bankruptcy Court granted
that motion on May 1, 2006 and the Equity Holders’ Committee filed its Complaint
for Declaratory Relief against NVIDIA that same day. NVIDIA moved to dismiss the
Complaint for Declaratory Relief, and the Bankruptcy Court granted that motion
with leave to amend. The Equity Committee thereafter amended its complaint, and
NVIDIA moved to dismiss that amended complaint as well. At a hearing on December
21, 2006, the Bankruptcy Court granted the motion as to one of the Equity
Holders’ Committee’s claims, and denied it as to the others. However, the
Bankruptcy Court also ruled that NVIDIA would only be required to answer the
first three causes of action by which the Equity Holders’ Committee seeks a
determination that the APA was not terminated before 3dfx filed for bankruptcy
protection, that the 3dfx bankruptcy estate still holds some rights in the APA,
and that the APA is capable of being assumed by the bankruptcy
estate. Because of the trial of the Trustee's fraudulent transfer
claims against NVIDIA, the Equity Committee's lawsuit has not progressed
substantially in 2007. The next status conference is not scheduled
until July 31, 2008. In addition, the Equity Holders Committee filed a motion
seeking Bankruptcy Court approval of investor protections for Harbinger Capital
Partners Master Fund I, Ltd., an equity investment firm that has conditionally
agreed to pay no more than $51.5 million for preferred stock in 3dfx. The
hearing on that motion was held on January 18, 2007, and the Bankruptcy Court
approved the proposed protections.
Proceedings,
SEC inquiry and lawsuits related to our historical stock option granting
practices
In
June 2006, the Audit Committee of the Board of NVIDIA, or the Audit Committee,
began a review of our stock option practices based on the results of an internal
review voluntarily undertaken by management. The Audit Committee, with the
assistance of outside legal counsel, completed its review on November 13, 2006
when the Audit Committee reported its findings to our full Board. The review
covered option grants to all employees, directors and consultants for all grant
dates during the period from our initial public offering in January 1999 through
June 2006. Based on the findings of the Audit Committee and our internal review,
we identified a number of occasions on which we used an incorrect measurement
date for financial accounting and reporting purposes.
We
voluntarily contacted the SEC regarding the Audit Committee’s
review. In late August 2006, the SEC initiated an inquiry related to
our historical stock option grant practices. In October 2006, we met with the
SEC and provided it with a review of the status of the Audit Committee’s review.
In November 2006, we voluntarily provided the SEC with additional documents. We
continued to cooperate with the SEC throughout its inquiry. On
October 26, 2007, the SEC formally notified us that the SEC's investigation
concerning our historical stock option granting practices had been terminated
and that no enforcement action was recommended.
Concurrently
with our internal review and the SEC’s inquiry, since September 29, 2006, ten
derivative cases have been filed in state and federal courts asserting claims
concerning errors related to our historical stock option granting practices and
associated accounting for stock-based compensation expense. These complaints
have been filed in various courts, including the California Superior Court,
Santa Clara County, the United States District Court for the Northern District
of California, and the Court of Chancery of the State of Delaware in and for New
Castle County. The California Superior Court cases have been consolidated and
plaintiffs filed a consolidated complaint on April 23, 2007. Plaintiffs in the
Delaware action filed an Amended Shareholder Derivative Complaint on February
12, 2008. Plaintiffs in the federal action filed a Second Amended Consolidated
Verified Shareholders Derivative Complaint on March 18, 2008. All of the cases
purport to be brought derivatively on behalf of NVIDIA against members of our
Board and several of our current and former officers and directors. Plaintiffs
in these actions allege claims for, among other things, breach of fiduciary
duty, unjust enrichment, insider selling, abuse of control, gross mismanagement,
waste, and constructive fraud. The Northern District of California action also
alleges violations of federal provisions, including Sections 10(b) and 14(a) of
the Securities Exchange Act of 1934. The plaintiffs seek to recover for NVIDIA,
among other things, damages in an unspecified amount, rescission, punitive
damages, treble damages for insider selling, and fees and costs. Plaintiffs also
seek an accounting, a constructive trust and other equitable relief. We intend
to take all appropriate action in response to these complaints. Between May 14,
2007 and May 17, 2007, we filed several motions to dismiss or to stay the
federal, Delaware and Santa Clara actions. The Delaware motions were superseded
when the Delaware plaintiffs filed the Amended Shareholder Derivative Complaint
on February 28, 2008. The federal motions were superseded when the federal
plaintiffs filed the Second Amended Consolidated Verified Shareholders
Derivative Complaint on March 18, 2008. We have not yet responded to either of
these Complaints. The Santa Clara motion to stay was denied without
prejudice and the parties are currently engaged in discovery-related
proceedings.
On August 5,
2007, our Board authorized the formation of a Special Litigation Committee to
investigate, evaluate, and make a determination as to how NVIDIA should proceed
with respect to the claims and allegations asserted in the underlying derivative
cases brought on behalf of NVIDIA. Currently, the Special Litigation
Committee's investigation is ongoing.
Department of Justice Subpoena
and Investigation, and Civil Cases
On
November 29, 2006, we received a subpoena from the San Francisco Office of the
Antitrust Division of the United States Department of Justice, or DOJ, in
connection with the DOJ's investigation into potential antitrust violations
related to GPUs and cards. No specific allegations have been made against us. We
are cooperating with the DOJ in its investigation.
As of
March 5, 2008, 55 civil complaints have been filed against us. The majority of
the complaints were filed in the Northern District of California, several were
filed in the Central District of California, and other cases were filed in
several other Federal district courts. On April 18, 2007, the
Judicial Panel on Multidistrict Litigation transferred the actions currently
pending outside of the Northern District of California to the Northern District
of California for coordination of pretrial proceedings before the Honorable
William H. Alsup. By agreement of the parties, Judge Alsup will
retain jurisdiction over the consolidated cases through trial or other
resolution.
In the
consolidated proceedings, two groups of plaintiffs (one representing all direct
purchasers of graphic processing units, or GPUs, and the other representing all
indirect purchasers) filed consolidated, amended class-action complaints. These
complaints purport to assert federal antitrust claims based on alleged price
fixing, market allocation, and other alleged anti-competitive agreements between
us and ATI Technologies, Inc., or ATI, and Advanced Micro Devices, Inc., or AMD,
as a result of its acquisition of ATI. The indirect purchasers’
consolidated amended complaint also asserts a variety of state law antitrust,
unfair competition and consumer protection claims on the same allegations, as
well as a common law claim for unjust enrichment.
Plaintiffs
filed their first consolidated complaints on June 14, 2007. On July
16, 2007, we moved to dismiss those complaints. The motions to
dismiss were heard by Judge Alsup on September 20, 2007. The Court
subsequently granted and denied the motions in part, and gave the
plaintiffs leave to move to amend the complaints. On November 7,
2007, the Court granted plaintiffs’ motion to file amended complaints, ordered
defendants to answer the complaints, lifted a previously entered stay on
discovery, and set a trial date for January 12, 2009. Discovery is
underway and plaintiffs are currently required to file any motion for class
certification by April 24, 2008. We believe the allegations in
the complaints are without merit and intend to vigorously defend the cases.
No matters were submitted
to a vote of our security holders during the fourth quarter of fiscal year
2008.
Our common
stock is traded on the NASDAQ Global Select Market under the symbol
NVDA. Public trading of our common stock began on January 22, 1999. Prior to
that, there was no public market for our common stock. As of March 14, 2008, we
had approximately 449 registered
stockholders, not including those shares held in street or nominee name. The
following table sets forth for the periods indicated the high and low sales
price for our common stock as quoted on the NASDAQ Global
Select Market:
|
|
High
|
|
|
Low
|
|
Fiscal
year ending January 25, 2009
|
|
|
|
|
|
|
First
Quarter (through March 14, 2008)
|
|
$ |
27.59
|
|
|
$ |
18.12
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended January 27, 2008
|
|
|
|
|
|
|
|
|
|
|
$ |
38.20
|
|
|
$ |
22.33
|
|
|
|
$ |
39.67
|
|
|
$ |
27.00
|
|
|
|
$ |
31.89
|
|
|
$ |
21.47
|
|
|
|
$ |
23.27
|
|
|
$ |
18.69
|
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended January 28, 2007
|
|
|
|
|
|
|
|
|
|
|
$ |
25.97
|
|
|
$ |
20.60
|
|
|
|
$ |
23.06
|
|
|
$ |
13.90
|
|
|
|
$ |
21.25
|
|
|
$ |
11.45
|
|
|
|
$ |
20.56
|
|
|
$ |
14.29
|
|
(1)
|
Reflects
a three-for-two stock split effective on September 10, 2007 and a
two-for-one stock split effective on April 6,
2006.
|
Dividend
Policy
We have never
paid and do not expect to pay cash dividends for the foreseeable
future.
Issuer
Purchases of Equity Securities
During fiscal
year 2005, we announced that our Board of Directors, or Board, had authorized a
stock repurchase program to repurchase shares of our common stock, subject to
certain specifications, up to an aggregate maximum amount of $300
million. During fiscal year 2007, the Board further approved an
increase of $400 million to the original stock repurchase program. In fiscal
year 2008, we announced a stock repurchase program under which we may
purchase up to an additional $1.0 billion of our common stock over a three year
period through May 2010. As a result of these increases, we have an ongoing
authorization from the Board, subject to certain specifications, to repurchase
shares of our common stock up to an aggregate maximum amount of $1.7
billion.
The
repurchases will be made from time to time in the open market, in privately
negotiated transactions, or in structured stock repurchase programs, and may be
made in one or more larger repurchases, in compliance with the Securities
Exchange Act of 1934, or the Exchange Act, Rule 10b-18, subject to market
conditions, applicable legal requirements, and other factors. The program does
not obligate NVIDIA to acquire any particular amount of common stock and the
program may be suspended at any time at our discretion. As part of our
share repurchase program, we have entered into, and we may continue to enter
into, structured share repurchase transactions with financial institutions.
These agreements generally require that we make an up-front payment in exchange
for the right to receive a fixed number of shares of our common stock upon
execution of the agreement, and a potential incremental number of shares of our
common stock, within a pre-determined range, at the end of the term of the
agreement.
During
the fiscal year ended January 27, 2008, we entered into structured share
repurchase transactions to repurchase 18.9 million shares for $499.4 million,
which we recorded on the trade date of the transactions. In addition,
we repurchased 1.8 million shares for $53.1 million in the open market
in privately negotiated transactions. Through January 27, 2008, we had
repurchased 61.7 million shares under our stock repurchase program for a total
cost of $1.04 billion.
Subsequent
to January 27, 2008, we entered into a structured share repurchase transaction
to repurchase shares of our common stock for $123.9 million that we expect to
settle prior to the end of our first quarter of fiscal year 2009 ending on
April 27, 2008.
Period:
|
Total
Number of Shares Purchased
|
|
|
Average Price Paid per Share
(2)
|
|
|
Total Number of Shares
Purchased as Part of Publicly Announced Plans of Programs (3)
|
|
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under the Plans or
Programs (1)
|
October
29, 2007 through November 25, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
26, 2007 through December 23, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
24, 2007 through January 27, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) On August 9, 2004, we
announced that our Board had authorized a stock repurchase program to repurchase
shares of our common stock, subject to certain specifications, up to an
aggregate maximum amount of $300.0 million. On March 6, 2006, we announced
that the Board had approved a $400.0 million increase to the original stock
repurchase program. Subsequently, on May 21, 2007, we announced a stock
repurchase program under which we may purchase up to an additional $1.0 billion
of our common stock over a three year period through May 2010. As a result of
these increases, we have an ongoing authorization from the Board, subject to
certain specifications, to repurchase shares of our common stock up to an
aggregate maximum amount of $1.7 billion on the open market, in negotiated
transactions or through structured stock repurchase agreements that may be made
in one or more larger repurchases.
(2) Represents
weighted average price paid per share during the quarter ended January 27,
2008.
(3) As part of our share
repurchase program, we have entered into and we may continue to enter into
structured share repurchase transactions with financial institutions. During the
three months ended January 27, 2008, we entered into a structured share
repurchase transaction to repurchase 3.9 million shares for $125.0 million which
we recorded on the trade date of the transaction. In addition, we
repurchased 1.8 million shares for $53.1 million in the open market,
in privately negotiated transactions. Subsequent to January 27, 2008, we entered
into a structured share repurchase transaction to repurchase shares of our
common stock for $123.9 million that we expect to settle prior to the end of our
first quarter of fiscal year 2009 ending on
April 27, 2008.
Stock
Performance Graphs
The
following graph compares the cumulative total stockholder return for our common
stock, the S & P 500 Index and the S & P 500 Semiconductors Index for
the five years ended January 27, 2008. The graph assumes that $100 was invested
on January 24, 2003 in our common stock or on January 31, 2003 in each of the S
& P 500 Index and the S & P Semiconductors Index. Total return assumes
reinvestment of dividends in each of the indices indicated. We have never paid
cash dividends on our common stock. Our results are calculated on fiscal
year-end basis and each of the S & P 500 Index and the S & P
Semiconductors Index are calculated on month-end basis. Total return is based on
historical results and is not intended to indicate future
performance.
|
|
1/24/2003
|
|
|
1/25/2004
|
|
|
1/30/2005
|
|
|
1/29/2006
|
|
|
1/28/2007
|
|
|
1/27/2008
|
|
|
|
$ |
100.00 |
|
|
$ |
227.04 |
|
|
$ |
224.98 |
|
|
$ |
454.77 |
|
|
$ |
618.88 |
|
|
$ |
735.99 |
|
|
|
$ |
100.00 |
|
|
$ |
134.57 |
|
|
$ |
142.96 |
|
|
$ |
157.79 |
|
|
$ |
180.70 |
|
|
$ |
176.52 |
|
|
|
$ |
100.00 |
|
|
$ |
199.05 |
|
|
$ |
149.60 |
|
|
$ |
172.97 |
|
|
$ |
162.86 |
|
|
$ |
151.77 |
|
The
following graph compares the cumulative total stockholder return for our common
stock, the S & P 500 Index and the S & P 500 Semiconductors Index for
the period commencing with our initial public offering through the year ended
January 27, 2008. The graph assumes that $100 was invested at our initial public
offering on January 21, 1999 in our common stock or on December 31, 1998 in each
of the S & P 500 Index and the S & P Semiconductors Index. Total return
assumes reinvestment of dividends in each of the indices indicated. We have
never paid cash dividends on our common stock. Our results are calculated on
fiscal year-end basis and each of the S & P 500 Index and the S & P
Semiconductors Index are calculated on month-end basis. Total return is based on
historical results and is not intended to indicate future
performance.
|
|
1/21/1999
|
|
|
1/31/1999
|
|
|
1/30/2000
|
|
|
1/28/2001
|
|
|
1/27/2002
|
|
|
1/24/2003
|
|
|
1/25/2004
|
|
|
1/30/2005
|
|
|
1/29/2006
|
|
|
1/28/2007
|
|
|
1/27/2008
|
|
NVIDIA
Corporation
|
|
$ |
100.00 |
|
|
$ |
158.33 |
|
|
$ |
311.46 |
|
|
$ |
846.88 |
|
|
$ |
2,182.33 |
|
|
$ |
339.00 |
|
|
$ |
769.67 |
|
|
$ |
762.67 |
|
|
$ |
1,541.67 |
|
|
$ |
2,098.00 |
|
|
$ |
2,495.00 |
|
S&P
500
|
|
$ |
100.00 |
|
|
$ |
104.18 |
|
|
$ |
114.96 |
|
|
$ |
113.93 |
|
|
$ |
95.53 |
|
|
$ |
73.54 |
|
|
$ |
98.97 |
|
|
$ |
105.13 |
|
|
$ |
116.05 |
|
|
$ |
132.89 |
|
|
$ |
129.82 |
|
S&P
Semiconductors
|
|
$ |
100.00 |
|
|
$ |
119.64 |
|
|
$ |
180.33 |
|
|
$ |
145.17 |
|
|
$ |
112.96 |
|
|
$ |
50.00 |
|
|
$ |
99.52 |
|
|
$ |
74.79 |
|
|
$ |
86.48 |
|
|
$ |
81.43 |
|
|
$ |
75.88 |
|
The
following selected financial data should be read in conjunction with our
financial statements and the notes thereto, and with Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” The
consolidated statement of income data for the years ended January 27, 2008,
January 28, 2007 and January 29, 2006 and the consolidated balance sheet data as
of January 27, 2008 and January 28, 2007 have been derived from and should be
read in conjunction with our audited consolidated financial statements and the
notes thereto included elsewhere in this Annual Report on Form 10-K. The
consolidated statement of income data for the year ended January 30, 2005 and
January 25, 2004 and the consolidated balance sheet data as of January 30, 2005,
are derived from audited consolidated financial statements and the notes thereto
which are not included in this Annual Report on Form 10-K. The
consolidated balance sheet data as of January 25, 2004 is derived from
unaudited consolidated financial statements which are not included in this
Annual Report on Form 10-K.
|
|
Year
Ended
|
|
|
|
January
27,
|
|
January
28,
|
|
January
29,
|
|
January
30,
|
|
January
25,
|
|
|
|
2008
(C)
|
|
2007
(B,
C)
|
|
2006
(D)
|
|
2005
|
|
2004
(C,
E)
|
|
|
|
(In
thousands, except per share data)
|
|
Consolidated
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in basic per share computation (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in diluted per share computation (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
27,
|
|
January
28,
|
|
January
29,
|
|
January
30,
|
|
January
25,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
(In
thousands)
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations, less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
Reflects a three-for-two stock-split effective September 10, 2007 and a
two-for-one stock-split effective April 6, 2006.
(B)
Fiscal year 2007 included a charge of $17.5 million associated with a
confidential patent licensing arrangement.
(C)
Fiscal years 2008, 2007 and 2004 include a charge of $4.0 million, $13.4 million
and $3.5 million towards in-process research and development expense related to
our purchase of Mental Images Inc., PortalPlayer Inc. and MediaQ Inc.,
respectively, that had not yet reached technological feasibility and have no
alternative future use.
(D)
Fiscal year 2006 included a charge of $14.2 million related to settlement costs
associated with two litigation matters, 3dfx and American Video Graphics, LP, or
AVG.
(E)
Fiscal 2004 included a charge of $13.1 million in connection with our
convertible subordinated debenture redemption.
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with “Item 1A. Risk Factors”, “Item 6.
Selected Financial Data”, our Consolidated Financial Statements and related
Notes thereto, as well as other cautionary statements and risks described
elsewhere in this Annual Report on Form 10-K, before deciding to purchase, hold
or sell shares of our common stock.
Overview
Our Company
NVIDIA Corporation is the
worldwide leader in visual computing technologies and the inventor of the
graphics processing unit, or the GPU. Our products are designed to generate
realistic, interactive graphics on consumer and professional computing devices.
We serve the entertainment and consumer market with our GeForce products, the
professional design and visualization market with our Quadro products, and the
high-performance computing market with our NVIDIA Tesla products. We have four
major product-line operating segments: the GPU business, the professional
solutions business, or PSB, the media and communications processor, or MCP,
business, and the consumer products business, or CPB.
Our GPU business is
comprised primarily of our GeForce products that support desktop and notebook
personal computers, or PCs, plus memory products. Our PSB is comprised of our
NVIDIA Quadro professional workstation products and other professional graphics
products, including our NVIDIA Tesla high-performance computing products. Our
MCP business is comprised of NVIDIA nForce core logic and motherboard GPU
products. Our CPB is comprised of our GoForce and APX mobile brands and products
that support handheld personal media players, or PMPs, personal digital
assistants, or PDAs, cellular phones and other handheld devices. CPB also
includes license, royalty, other revenue and associated costs related to video
game consoles and other digital consumer electronics
devices. Original equipment manufacturers, or OEMs, original design
manufacturers, or ODMs, add-in-card manufacturers, system builders and consumer
electronics companies worldwide utilize NVIDIA processors as a core component of
their entertainment, business and professional solutions.
We were incorporated in
California in April 1993 and reincorporated in
Delaware in April 1998. Our headquarter
facilities are in Santa
Clara, California. Our Internet address is www.nvidia.com. The contents of our website
are not a part of this Form 10-K.
Seasonality
Our industry is largely
focused on the consumer products market. Due to the seasonality in this market,
we typically expect to see stronger revenue performance in the second half of
the calendar year related to the back-to-school and holiday
seasons.
Recent
Developments, Future Objectives and Challenges
GPU
Business
During
fiscal year 2008, our GeForce product was the share leader in the Standalone
Desktop GPU and Standalone Notebook GPU categories for calendar year 2007 as
reported in the 2007 Fourth Quarter PC Graphics Report from Mercury
Research. Additionally, we maintained our leadership position in both
the DirectX9 and DirectX10 generation of standalone desktop GPUs.
During
fiscal year 2008, we launched several new GPUs, adding the NVIDIA GeForce 8800
Ultra, 8800 GT, 8600, 8500, and 8300 to our GeForce 8-series of GPUs, which
previously included the 8800 GTX and 8800 GTS. The success of these products
helped us grow our share in the Standalone Desktop GPU category from 52% in the
fourth quarter of calendar 2006 to 64% in the fourth quarter of calendar 2007,
according to the Mercury Research 2006 and 2007 Fourth Quarter PC Graphics
Reports, respectively.
During fiscal year 2008, we also
launched our PureVideo HD technology, which is a video decode and post
processing technology for Blu-ray and HD DVD.
During the second quarter
of fiscal year 2008, we launched a new family of GeForce 8M Series notebook
GPUs. We also supported the production ramp of top notebook PC OEMs, including
Acer, Apple, ASUS, Dell, HP, Lenovo, Samsung, Sony and Toshiba. We experienced a
high degree of design-win success for the Intel Santa Rosa platform cycle during
fiscal year 2008, which helped our standalone notebook category share grow from
58% in the fourth quarter of calendar 2006 to 75% in the fourth quarter of
calendar 2007, according to the Mercury Research 2006 and 2007 Fourth Quarter PC
Graphics Reports.
Subsequent to the end of
fiscal year 2008, on February 11, 2008, we completed our acquisition of Aegia
Technologies, Inc., or Aegia, an industry leader in gaming physics technology.
Ageia's PhysX software is widely adopted in several PhysX-based games that are
shipping or in development on Sony Playstation 3, Microsoft XBOX 360, Nintendo
Wii, and gaming PCs. We believe that the combination of the GPU and physics
engine brands will result in an enhanced visual experience of the gaming
world.
Professional Solutions
Business
During fiscal year 2008, we launched
seven new Quadro solutions, including the Quadro FX 370 and 570. In the first
quarter of fiscal year 2008, we expanded our NVIDIA Quadro Plex family with the
introduction of the NVIDIA Quadro Plex VCS IV, a new version of the NVIDIA
Quadro Plex visual computing system, or VCS, which provides enhanced performance
for a wide range of high-performance, graphics-intensive styling and design, oil
and gas, and scientific applications. Additionally, in the first quarter of
fiscal year 2008, we launched the NVIDIA Quadro FX 4600 and NVIDIA Quadro FX
5600 products, which are professional solutions based on our GeForce 8-series
unified architecture. During the second quarter of fiscal year 2008, we also
introduced a new line of notebook workstation GPUs, the NVIDIA Quadro FX 1600M,
570M and 360M.
In fiscal
year 2008, we also introduced NVIDIA Tesla, our entry into the high-performance
computing industry. Tesla is a new family of GPU computing products that
delivers processing capabilities for high-performance computing applications.
The Tesla family consists of the C870 GPU computing processor, the D870 Deskside
Supercomputer and the S870 1U Computing Server.
In fiscal
year 2008, we completed our acquisition of Mental Images, an industry leader in
photorealistic rendering technology. Mental Images’ Mental Ray product is
considered by many to be the most pervasive ray tracing renderer in the
industry. Mental Images visualization technology is embedded in most
major digital content creation, or DCC, and computer aided design, or CAD,
applications, and its rendering technology is deployed by major manufacturers
and film studios. We believe that this strategic combination will enable the
development of tools and technologies that will advance the state of
visualization, will be optimized for next generation computing architectures,
and will create new product categories for both hardware and
software.
MCP
Business
In fiscal
year 2008, we announced a new technology named Hybrid SLI. We named
it hybrid because this technology combines a powerful as well as an
energy-efficient engine, and of Scalable Link Interface, or SLI, because it is
our multi-GPU technology. The technology is application aware so,
depending on the processing demands of each application running on the host PC,
the discrete GPU may be completely shut-down in order to save
power.
During
fiscal year 2008, our NVIDIA nForce products held the leadership position for
the AMD segment, as reported in the 2007 Fourth Quarter PC Processor and
Chipsets Report from Mercury Research.
During
the third quarter of fiscal year 2008, we shipped our first single-chip
motherboard GPUs, or mGPUs, for Intel-processor-based desktop
PCs. The GeForce 7000 mGPU family delivers the performance of an
entry-level discrete GPU when compared against traditional integrated graphics
solutions.
During
the first quarter of fiscal year 2008, we shipped the GeForce 7050 mGPU, which
targets the lower cost categories of the market.
During
the first quarter of fiscal year 2008, we extended the reach of SLI technology
into the performance category with the launch of our NVIDIA nForce 650i
SLI, 680i LT SLI and 680i Ultra MCP products for Intel.
Consumer
Products Business
During
the first quarter of fiscal year 2008, we unveiled our first applications
processor – the GoForce 6100. The GoForce 6100 is designed for next
generation PMPs, and multimedia smart phones. We began to ship the GoForce
6100 during the second quarter of fiscal year 2008.
Subsequent to
fiscal year 2008, in February 2008, we launched the NVIDIA APX
2500. The APX 2500 is a computer-on-a-chip designed to meet the
growing multimedia demands of today's mobile phone user. The APX 2500
is the culmination of several hundred man years of research and
development. We believe that the mobile application processor is an
area where we can add a significant amount of value and we also believe it
represents a revenue growth opportunity.
Gross
Margin Improvement
We
continued to focus on improving our gross margin in fiscal year 2008. Our gross
margin was 45.6% for fiscal year 2008, an increase of 320 basis points from
our gross margin of 42.4% for fiscal year 2007.
Our gross
margin is significantly impacted by the mix of products that we earn revenue
from during each of our fiscal periods. Product mix is often difficult to
estimate with accuracy. Therefore, if we achieve significant revenue
growth in our lower margin product lines, or if we are unable to earn as much
revenue as we expect from higher margin product lines, our gross margin may be
negatively impacted. We expect gross margin will be relatively flat to slightly
up during the first quarter of fiscal year 2009 as compared to the fourth
quarter of fiscal year 2008.
Subsequent
Event
Property
Purchase
On February 14, 2008, we
closed escrow on a purchase of property that includes approximately 25 acres of
land and ten commercial buildings in Santa Clara, California for approximately
$150.0 million.
Critical
Accounting Policies and Estimates
Management’s
discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue, cost
of revenue, expenses and related disclosure of contingencies. On an on-going
basis, we evaluate our estimates, including those related to revenue
recognition, accounts receivable, inventories, income taxes, and goodwill. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities.
We believe
the following critical accounting policies affect our significant judgments and
estimates used in the preparation of our consolidated financial statements. Our
management has discussed the development and selection of these critical
accounting policies and estimates with the Audit Committee of our Board of
Directors, or Board. The Audit Committee has reviewed our disclosures
relating to our critical accounting policies and estimates in this Annual Report
on Form 10-K.
Revenue
Recognition
Product
Revenue
We
recognize revenue from product sales when persuasive evidence of an arrangement
exists, the product has been delivered, the price is fixed and determinable, and
collection is reasonably assured. For most sales, we use a binding purchase
order and in certain cases we use a contractual agreement as evidence of an
arrangement. We consider delivery to occur upon shipment provided title and risk
of loss have passed to the customer based on the shipping terms. At the point of
sale, we assess whether the arrangement fee is fixed and determinable and
whether collection is reasonably assured. If we determine that collection of a
fee is not reasonably assured, we defer the fee and recognize revenue at the
time collection becomes reasonably assured, which is generally upon receipt of
payment.
Our policy on sales to certain
distributors, with rights of return, is to defer recognition of revenue and
related cost of revenue until the distributors resell the product.
We record estimated
reductions to revenue for customer programs at the time revenue is recognized.
Our customer programs primarily involve rebates, which are designed to serve as
sales incentives to resellers of our products in various target markets. We
account for rebates in accordance with Emerging Issues Task Force Issue 01-9, or
EITF 01-09, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products) and, as such, we accrue for 100% of the potential
rebates and do not apply a breakage factor. Rebates typically expire six months
from the date of the original sale, unless we reasonably believe that the
customer intends to claim the rebate. Unclaimed rebates are reversed to revenue
upon expiration of the rebate.
Our
customer programs also include marketing development funds, or MDFs. We account
for MDFs as either a reduction of revenue or an operating expense in accordance
with EITF 01-09. MDFs represent monies paid to retailers, system builders,
original equipment manufacturers, or OEMs, distributors and add-in card partners
that are earmarked for market segment development and expansion and typically
are designed to support our partners’ activities while also promoting NVIDIA
products. Depending on market conditions, we may take actions to increase
amounts offered under customer programs, possibly resulting in an incremental
reduction of revenue at the time such programs are offered.
We also
record a reduction to revenue by establishing a sales return allowance for
estimated product returns at the time revenue is recognized, based primarily on
historical return rates. However, if product returns for a particular fiscal
period exceed historical return rates we may determine that additional sales
return allowances are required to properly reflect our estimated exposure for
product returns.
License and
Development Revenue
For
license arrangements that require significant customization of our intellectual
property components, we generally recognize this license revenue using the
percentage-of-completion method of accounting over the period that services are
performed. For all license and service arrangements accounted for under the
percentage-of-completion method, we determine progress to completion based on
actual direct labor hours incurred to date as a percentage of the estimated
total direct labor hours required to complete the project. We periodically
evaluate the actual status of each project to ensure that the estimates to
complete each contract remain accurate. A provision for estimated losses on
contracts is made in the period in which the loss becomes probable and can be
reasonably estimated. Costs incurred in advance of revenue recognized are
recorded as deferred costs on uncompleted contracts. If the amount billed
exceeds the amount of revenue recognized, the excess amount is recorded as
deferred revenue. Revenue recognized in any period is dependent on our progress
toward completion of projects in progress. Significant management judgment and
discretion are used to estimate total direct labor hours. Any changes in or
deviations from these estimates could have a material effect on the amount of
revenue we recognize in any period.
Accounts
Receivable
We maintain an allowance for
doubtful accounts receivable for estimated losses resulting from the inability
of our customers to make required payments. Management determines this
allowance, which consists of an amount identified for specific customer issues
as well as an amount based on general estimated exposure. Our overall estimated
exposure excludes significant amounts that are covered by credit insurance and
letters of credit. If the financial condition of our customers, the financial
institutions providing letters of credit, or our credit insurance carrier were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required that could adversely affect our operating
results. Furthermore, there can be no assurance that we will be able to obtain
credit insurance in the future. Our current credit insurance agreement expires
on December 31, 2009.
As of January 27, 2008, our
allowance for doubtful accounts receivable was $1.0 million and our gross
accounts receivable balance was $686.2 million. Of the $686.2 million, $180.7
million was covered by credit insurance and $17.1 million was covered by letters
of credit. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required and we may have to record additional reserves or
write-offs on certain sales transactions in the future. As a percentage of our
gross accounts receivable balance, our allowance for doubtful accounts
receivable has ranged between 0.1% and 0.3% during fiscal years 2008
and 2007. Factors impacting the allowance include the level of gross
receivables, the financial condition of our customers and the extent to which
balances are covered by credit insurance or letters of credit. As of January 27,
2008, our allowance for doubtful accounts receivable represented 0.1% of our
gross accounts receivable balance. If our allowance for doubtful accounts
receivable balance had been recorded at the high end of the range, at 0.3% of
our gross receivable balance, then our allowance for doubtful accounts
receivable balance at January 27, 2008, would have been approximately $1.9
million, rather than the actual balance of $1.0 million.
Inventories
Inventory cost is
computed on an adjusted standard basis; which approximates actual cost on an
average or first-in, first-out basis. We write down our inventory for estimated
lower of cost or market, obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand, future product purchase commitments,
estimated manufacturing yield levels and market conditions. If actual market
conditions are less favorable than those projected by management, or if our
future product purchase commitments to our suppliers exceed our forecasted
future demand for such products, additional future inventory write-downs may be
required that could adversely affect our operating results. If actual market
conditions are more favorable, we may have higher gross margins when products
are sold. Sales to date of such products have not had a significant impact on
our gross margin. As of January 27, 2008, our inventory reserve was $32.9
million. As a percentage of our gross inventory balance, our inventory reserve
has ranged between 8.4% and 13.5% during fiscal years 2008 and 2007. As of
January 27, 2008, our inventory reserve represented 8.4% of our gross inventory
balance. If our inventory reserve balance had been recorded at the high end of
the range, at 13.5% of our gross inventory balance, then our inventory reserve
balance at January 27, 2008, would have been approximately $52.7 million, rather
than the actual balance of $32.9 million. Inventory reserves once established
are not reversed until the related inventory has been sold or
scrapped.
Income
Taxes
Statement
of Financial Accounting Standards No. 109, or SFAS No. 109, Accounting for Income Taxes,
establishes financial accounting and reporting standards for the effect of
income taxes. In accordance with SFAS No. 109, we recognize federal, state
and foreign current tax liabilities or assets based on our estimate of taxes
payable or refundable in the current fiscal year by tax jurisdiction. We also
recognize federal, state and foreign deferred tax assets or liabilities, as
appropriate, for our estimate of future tax effects attributable to temporary
differences and carryforwards; and we record a valuation allowance to reduce any
deferred tax assets by the amount of any tax benefits that, based on available
evidence and judgment, are not expected to be realized.
United
States income tax has not been provided on earnings of our non-U.S. subsidiaries
to the extent that such earnings are considered to be permanently
reinvested.
Our
calculation of current and deferred tax assets and liabilities is based on
certain estimates and judgments and involves dealing with uncertainties in the
application of complex tax laws. Our estimates of current and deferred tax
assets and liabilities may change based, in part, on added certainty or finality
to an anticipated outcome, changes in accounting standards or tax laws in the
United States, or foreign jurisdictions where we operate, or changes in other
facts or circumstances. In addition, we recognize liabilities for potential
United States and foreign income tax contingencies based on our estimate of
whether, and the extent to which, additional taxes may be due. If we determine
that payment of these amounts is unnecessary or if the recorded tax liability is
less than our current assessment, we may be required to recognize an income tax
benefit or additional income tax expense in our financial statements,
accordingly.
As of
January 27, 2008, we had a valuation allowance of $82.5 million. Of
the total valuation allowance, $4.7 million relates to state tax attributes
acquired in certain acquisitions for which realization of the related deferred
tax assets was determined not likely to be realized due, in part, to potential
utilization limitations as a result of stock ownership changes, and $77.8
million relates to state deferred tax assets that management determined not
likely to be realized due, in part, to projections of future taxable income. To
the extent realization of the deferred tax assets related to certain
acquisitions becomes more-likely-than-not, recognition of these acquired tax
benefits would first reduce goodwill to zero, then reduce other non-current
intangible assets related to the acquisition to zero with any remaining benefit
reported as a reduction to income tax expense. We would
recognize an income tax benefit during the period that the realization of the
deferred tax assets related to state tax benefits becomes
more-likely-than-not
In
accordance with Statement of Financial Accounting Standards No. 123(R), or
SFAS No. 123(R), Share Based
Payment, our deferred tax assets do not include the excess tax benefit
related to stock-based compensation that are a component of our federal and
state net operating loss and research tax credit carryforwards in the amount of
$564.1 million as of January 27, 2008. Consistent with prior years, the excess
tax benefit reflected in our net operating loss and research tax credit
carryforwards will be accounted for as a credit to stockholders’ equity, if and
when realized. In determining if and when excess tax benefits have
been realized, we have elected to do so on a with-and-without approach with
respect to such excess tax benefits. We have also elected to ignore the indirect
tax effects of stock-based compensation deductions for financial and accounting
reporting purposes, and specifically to recognize the full effect of the
research tax credit in income from continuing operations.
On January 29, 2007, we adopted FASB
Interpretation No. 48, or FIN 48, Accounting for
Uncertainty in Income Taxes, issued in July 2006. FIN 48 applies to
all tax positions related to income taxes subject to SFAS No. 109. Under FIN 48
we recognize the benefit from a tax position only if it is more-likely-than-not
that the position would be sustained upon audit based solely on the technical
merits of the tax position. The cumulative effect of adoption of FIN 48 did not
result in a material adjustment to our tax liability for unrecognized income tax
benefits. Our policy to include interest and penalties related to unrecognized
tax benefits as a component of income tax expense did not change as a result of
implementing the FIN 48. Please refer to Note 13 of these Notes to Consolidated
Financial Statements for additional information.
Goodwill
Our
impairment review process compares the fair value of the reporting unit in
which the goodwill resides to its carrying value. We determined that our
reporting units are equivalent to our operating segments for the purposes of
completing our Statement of Financial Accounting Standards No. 142, or SFAS
No. 142, Goodwill and Other
Intangible Assets, impairment test. We utilize a two-step approach
to testing goodwill for impairment. The first step tests for possible impairment
by applying a fair value-based test. In computing fair value of our reporting
units, we use estimates of future revenues, costs and cash flows from such
units. The second step, if necessary, measures the amount of such impairment by
applying fair value-based tests to individual assets and liabilities. We elected
to perform our annual goodwill impairment review during the fourth quarter of
each fiscal year. We completed our most recent annual impairment test during the
fourth quarter of fiscal year 2008 and concluded that there was no
impairment. Determining the number of reporting units and the fair
value of a reporting unit requires us to make judgments and involves the use of
significant estimates and assumptions. These estimates and assumptions include
revenue growth rates and operating margins used to calculate projected future
cash flows, risk-adjusted discount rates, future economic and market conditions,
and determination of appropriate market comparables. We base our fair value
estimates on assumptions we believe to be reasonable but that are unpredictable
and inherently uncertain. In addition, we make judgments and
assumptions in allocating assets and liabilities to each of our reporting
units. The long-term financial forecast represents the best estimate
that we have at this time and we believe that its underlying assumptions are
reasonable. However, actual performance in the near-term and longer-term could
be materially different from these forecasts, which could impact future
estimates of fair value of our reporting units and may result in a charge to
earnings in future periods due to the potential for a write-down of goodwill in
connection with such tests.
Stock-based
Compensation
Effective
January 30, 2006, we adopted the provisions of SFAS No. 123(R), which establishes
accounting for stock-based awards exchanged for employee services. Accordingly,
stock-based compensation cost is measured at grant date, based on the fair value
of the awards, and is recognized as expense over the requisite employee service
period. Stock-based compensation expense recognized during fiscal years 2008 and
2007 was $133.4 million and $116.7 million, respectively, which consisted
of stock-based compensation expense related to stock options and our employee
stock purchase plan. Please refer to Note 2 of the Notes to Consolidated
Financial Statements for further information.
We elected to
adopt the modified prospective application method beginning January 30, 2006 as
provided by SFAS No. 123(R). We recognize stock-based compensation expense using
the straight-line attribution method. We estimate the value of employee stock
options on the date of grant using a binomial model. Prior to the adoption of
SFAS No. 123(R), we recorded stock-based compensation expense equal to the
amount that would have been recognized if the fair value method was used, for
the purpose of the pro forma financial information provided in accordance with
Statement of Financial Accounting Standards No. 123, or SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosures.
At the
beginning of fiscal year 2006, we transitioned from a Black-Scholes model to a
binomial model for calculating the estimated fair value of new stock-based
compensation awards granted under our stock option plans. The determination of
fair value of share-based payment awards on the date of grant using an
option-pricing model is affected by our stock price as well as assumptions
regarding a number of highly complex and subjective variables. These variables
include, but are not limited to, the expected stock price volatility over the
term of the awards, actual and projected employee stock option exercise
behaviors, vesting schedules, death and disability probabilities, expected
volatility and risk-free interest. Our management determined that the use of
implied volatility is expected to be more reflective of market conditions and,
therefore, could reasonably be expected to be a better indicator of our expected
volatility than historical volatility. The risk-free interest rate assumption is
based upon observed interest rates appropriate for the term of our employee
stock options. The dividend yield assumption is based on the history and
expectation of dividend payouts. We began segregating options into groups for
employees with relatively homogeneous exercise behavior in order to calculate
the best estimate of fair value using the binomial valuation model.
Using the
binomial model, the fair value of the stock options granted under our stock
option plans have been estimated using the following assumptions during the year
ended January 27, 2008:
Weighted
average expected life of stock options (in years)
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For our
employee stock purchase plan we continue to use the Black-Scholes model. The
fair value of the shares issued under the employee stock purchase plan has been
estimated using the following assumptions during year ended January 27,
2008:
Weighted
average expected life of stock options (in years)
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SFAS No.
123(R) also requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Forfeitures were estimated based on historical experience. If
factors change and we employ different assumptions in the application of SFAS
No. 123(R) in future periods, the compensation expense that we record under SFAS
No. 123(R) may differ significantly from what we have recorded in the current
period.
Litigation,
Investigation and Settlement Costs
From time to time, we are
involved in legal actions and/or investigations by regulatory bodies. We are
aggressively defending our current litigation matters for which we are
responsible. However, there are many uncertainties associated with any
litigation or investigations, and we cannot be certain that these actions or
other third-party claims against us will be resolved without costly litigation,
fines and/or substantial settlement payments. If that occurs, our business,
financial condition and results of operations could be materially and adversely
affected. If information becomes available that causes us to determine that a
loss in any of our pending litigation, investigations or settlements is
probable, and we can reasonably estimate the loss associated with such events,
we will record the loss in accordance with accounting principles generally
accepted in the United States. However, the actual liability in any such
litigation or investigations may be materially different from our estimates,
which could require us to record additional costs.
Results
of Operations
The following table sets forth,
for the periods indicated, certain items in our consolidated statements of
income expressed as a percentage of revenue.
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Year
Ended
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January
27, 2008
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January
28, 2007
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January
29, 2006
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Sales,
general and administrative
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Interest
and other income, net
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Income
before income tax expense
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Fiscal
Years Ended January 27, 2008, January 28, 2007 and January 29, 2006
Revenue
We report
financial information for four major product-line operating segments to our
Chief Executive Officer, who is considered to be our chief operating decision
maker, as follows: the GPU Business, PSB, MCP business, and CPB. Revenue in
the "All Other" category is primarily derived from sales of
components. Please refer to Note 14 of our Notes to Consolidated
Financial Statements for further information.
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Fiscal
Year 2008 vs. Fiscal Year
2007
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Revenue was $4.10 billion for fiscal year 2008, compared
to $3.07
billion for fiscal year
2007, which represents an increase of 34%. For the first quarter of fiscal 2009,
we expect a slight seasonal decline associated with the PC business, although
overall, we believe our market and competitive position continues to be strong.
A discussion of our revenue results for
each of our operating segments is as follows:
GPU Business. GPU Business
revenue increased by 47% to $2.52 billion in fiscal year 2008, compared to $1.71
billion in fiscal year 2007. This improvement was primarily due to increased
sales of our desktop GPU products and notebook GPU products. Sales of
our desktop GPU products increased by approximately 38% compared to fiscal year
2007, primarily due to growth of the Standalone Desktop market as reported in
the 2007 Fourth Quarter PC Graphics Report from Mercury Research. Our
leadership position in the Standalone Desktop market was driven by our GeForce
8-based products. Sales of our notebook GPU products increased by
approximately 114% compared to fiscal year 2007. Notebook GPU revenue
growth was primarily due to share gains in the Standalone Notebook category as
reported in the 2007 Fourth Quarter PC Graphics Report from Mercury
Research. Our share gains in the Standalone Notebook category were
primarily a result of shipments of products used in notebook PC design wins
related to Intel’s Santa Rosa platform used in notebooks.
PSB. PSB revenue increased by
29% to $588.4 million in fiscal year 2008, compared to $454.7 million in fiscal
year 2007. Our professional workstation product sales increased due
to an overall increase in shipments of boards and chips. This
increase in shipments was primarily driven by our transition from previous
generations of NVIDIA Quadro professional workstation products to GeForce
8-based products.
MCP Business. MCP Business
revenue increased by 7% to $710.4 million in fiscal year 2008,
compared to $661.5 million in fiscal year 2007. The increase resulted from
an approximate 225% increase in sales of our Intel-based platform products
as compared to fiscal year 2007. We began ramping up shipments of our
Intel-based platform products after the third quarter of fiscal year
2007. This increase was offset by a decline in sales of our
AMD-based platform products and sales of products related to our acquisition of
ULi Electronics, Inc. in February 2006.
CPB. CPB revenue
increased by 8% to $251.1 million in fiscal year 2008, compared to $233.2
million in fiscal year 2007. The overall increase in CPB revenue is
primarily due to increased royalties from Sony Computer Entertainment, or SCE,
but was offset by decreases in revenue from our cell phone products and our
contractual development arrangements with SCE.
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Fiscal
Year 2007 vs. Fiscal Year
2006
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Revenue
was $3.07 billion for fiscal year 2007, compared to $2.38 billion for fiscal
year 2006, which represents an increase of 29%. A discussion of our revenue
results for each of our operating segments is as follows:
GPU Business. GPU Business
revenue increased by 21% to $1.71 billion for fiscal year 2007, compared to
$1.41 billion for fiscal year 2006. The increase was a result of increased sales
of our desktop and notebook products. The increase in sales of our desktop
products was led by our GeForce 7-based and GeForce 8-based products that serve
the high-end segment. Sales of our notebook products improved due to an
increased mix of GeForce 7-based products, shipping for notebook PC design wins
based on Intel’s Napa platform. This increase in sales was slightly offset by a
decrease in average selling prices.
PSB. PSB revenue increased by
21% to $454.7 million in fiscal year 2007, compared to $376.2 million in fiscal
year 2006. Our professional workstation product sales
increased due to an increase in unit shipments, offset by a slight decrease
in average selling prices.
MCP Business. MCP Business
revenue was $661.5 million for fiscal year 2007, compared to $352.3 million for
fiscal year 2006, which represents an increase of 88%. The overall increase
in MCP business revenue is primarily due to sales of newer NVIDIA nForce4
products, NVIDIA nForce5 products, integrated AMD-based desktop products, and
integrated Intel-based desktop products, which began shipping after the second
quarter of fiscal year 2007. In addition, revenue also increased as a result of
our acquisition of ULi in February 2006.
CPB. CPB revenue
increased by 1% to $233.2 million in fiscal year 2007, compared to $230.1
million in fiscal year 2006. The overall increase in CPB revenue is
primarily due to increased unit sales of high-end feature cellular phone and PDA
products as well as revenue recognized from our contractual development
arrangements. The increase in CPB revenue was offset by a decrease in
sales of our Xbox-related products to Microsoft. We recognized
revenue from the sale of our Xbox-related products to Microsoft for the last
time during the second quarter of fiscal year 2006.
We
generated 89%, 86% and 84% of our total revenue for fiscal years 2008, 2007 and
2006, respectively, from sales to customers outside the United States and other
Americas. Revenue by geographic region is allocated to individual countries
based on the location to which the products are initially billed even if the
foreign contract equipment manufacturers, or CEMs’, add-in board and motherboard
manufacturers’ revenue is attributable to end customers in a different
location.
Sales
to our significant customers accounted for approximately 10% of our total
revenue from one customer during fiscal year 2008, 12% of our total revenue from
one customer during fiscal year 2007, and 26% of our total revenue from two
customers during fiscal year 2006.
Gross
Profit and Gross Margin
Gross
profit consists of total revenue, net of allowances, less cost of revenue. Cost
of revenue consists primarily of the cost of semiconductors purchased from
subcontractors, including wafer fabrication, assembly, testing and packaging,
manufacturing support costs, including labor and overhead associated with such
purchases, final test yield fallout, inventory provisions and shipping
costs. Cost of revenue also includes development costs for license and
service arrangements.
Gross
margin is the percentage of gross profit to revenue. Our gross margin can vary
in any period depending on the mix of types of products sold. Our gross margin
was 45.6%, 42.4% and 38.3% for fiscal years 2008, 2007 and 2006,
respectively. The improvement in our gross margin reflects our
continuing focus on delivering cost effective product architectures, enhancing
business processes and delivering profitable growth.
Our gross
margin is significantly impacted by the mix of products we sell. Product mix is
often difficult to estimate with accuracy and, thus, if we achieve significant
revenue growth in our lower margin product lines, or if we are unable to earn as
much revenue as we expect from higher margin product lines, our gross margin may
be negatively impacted. We expect gross margin to remain relatively
flat to slightly up during the first quarter of fiscal year 2009 as compared to
the fourth quarter of fiscal year 2008. A discussion of our gross margin
results for each of our operating segments is as follows:
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Fiscal
Year 2008 vs. Fiscal Year
2007
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GPU Business. The gross
margin of our GPU Business increased during fiscal year 2008 as compared to
fiscal year 2007. This increase was primarily due to increased sales
of our GeForce 8-series GPUs, which began selling in the third quarter of fiscal
year 2007. Our GeForce 8-series GPUs generally have higher gross margins
than our previous generations of GPUs. Additionally, the more favorable costs of
memory purchases during fiscal year 2008, positively impacted our gross
margin.
PSB. The gross margin of our
PSB increased during fiscal year 2008 as compared to fiscal year
2007. This increase was primarily due to increased sales of our
GeForce 8-based NVIDIA Quadro products, which began selling in the fourth
quarter of fiscal year 2007 and generally have higher gross margins than our
previous generations of NVIDIA Quadro products.
MCP Business. The gross
margin of our MCP Business increased during fiscal year 2008 as compared to
fiscal year 2007. This increase was primarily due to a shift in
product mix towards Intel-based platform products, which began to ramp up
shipments after the third quarter of fiscal year 2007, and inventory reserves
that we recorded as a charge to cost of revenue during the first quarter of
fiscal year 2007 of approximately $4.1 million related to certain NVIDIA nForce
purchase commitments that we believed had exceeded future demand.
CPB. The gross margin of our
CPB decreased during fiscal year 2008 as compared to fiscal year
2007. This decrease was primarily due to a drop in gross profit
realized from sales of our high-end feature cellular phone and other handheld
devices. However, increased royalties from SCE during fiscal year
2008, offset the decreases.
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Fiscal
Year 2007 vs. Fiscal Year
2006
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GPU Business. The gross
margin of our GPU Business increased during fiscal year 2007 as compared to
fiscal year 2006, primarily due to the sale of our GeForce 8-series GPUs and
increased sales of our GeForce 7 series GPUs, which collectively accounted for
approximately 70% of our GPU Business revenue. Our GeForce 8 and our
GeForce 7 series GPUs generally have higher gross margins than our previous
generations of GPUs.
PSB. The gross margin of our
PSB increased during fiscal year 2007 as compared to fiscal year
2006. This increase was primarily due to increased sales of our
GeForce 7-based NVIDIA Quadro products, which began to ramp up in sales during
fiscal year 2007 and generally have higher gross margins than our previous
generations of NVIDIA Quadro products.
MCP Business. The gross
margin of our MCP Business decreased during fiscal year 2007 as compared to
fiscal year 2006, primarily due to a shift in product mix to higher volumes of
integrated AMD-based desktop products which have experienced lower gross margins
than our discrete MCP products, and inventory reserves that we recorded as a
charge to cost of revenue that primarily related to purchase commitments that we
believed had exceeded future demand.
CPB. The gross margin of our
CPB increased during fiscal year 2007 as compared to fiscal year 2006, primarily
due to an increase in unit sales of high-end feature cellular phone and PDA
products which generally have higher gross margins than our previous mobile
products. In addition, license and royalty revenue from our
contractual development arrangements that have higher gross margins compared to
the gross margin of Xbox products shipped in fiscal year
2006.
Operating
Expenses
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Year
Ended
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Year
Ended
|
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Jan.
27,
2008
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Jan.
28,
2007
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$
Change
|
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%
Change
|
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Jan.
28,
2007
|
|
Jan.
29,
2006
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$
Change
|
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%
Change
|
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(In
millions)
|
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(In
millions)
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Research
and development expenses
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$ |
691.6 |
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$ |
553.5 |
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$ |
138.1 |
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25
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% |
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$ |
553.5 |
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$ |
357.1 |
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$ |
196.4 |
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55 |
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Sales,
general and administrative expenses
|
|
341.3 |
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|
|
293.5 |
|
|
|
47.8 |
|
|
|
16
|
% |
|
|
293.5 |
|
|
|
202.1 |
|
|
|
91.4 |
|
45 |
|
Settlement
costs |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14.2 |
|
|
|
(14.2 |
) |
(100 |
)% |
|
$ |
1,032.9 |
|
|
$ |
847.0 |
|
|
$ |
185.9 |
|
|
|
22
|
% |
|
$ |
847.0 |
|
|
$ |
573.4 |
|
|
$ |
273.6 |
|
48 |
|
Research
and development as a percentage of net revenue
|
|
17 |
|
|
|
18
|
% |
|
|
|
|
|
|
|
|
|
|
18
|
% |
|
|
15
|
% |
|
|
|
|
|
|
Sales,
general and administrative as a percentage of net
revenue
|
|
8 |
|
|
|
10
|
% |
|
|
|
|
|
|
|
|
|
|
10
|
% |
|
|
9
|
% |
|
|
|
|
|
|
Research and
Development
Fiscal
Year 2008 vs. Fiscal Year 2007
Research and
development expenses were $691.6 million and $553.5 million during fiscal years
2008 and 2007, respectively, an increase of $138.1 million, or
25%. The increase is primarily related to an increase in salaries and
benefits by approximately $95.3 million as a result of personnel growth in
departments related to research and development functions by approximately 600
additional personnel in fiscal year 2008. Additionally, salaries and
benefits expenses also increased due to the increase in our variable
compensation expense as a result of our financial performance for fiscal year
2008. Facilities expenses and expenses related to computer software and
equipment also increased as a result of the personnel growth.
Fiscal
Year 2007 vs. Fiscal Year 2006
Research and
development expenses were $553.5 million and $357.1 million during fiscal years
2007 and 2006, respectively, an increase of $196.4 million, or 55%. The increase
was primarily due to increase in salaries and benefits by approximately $75.2
million as a result of personnel growth by approximately 1,000 additional
personnel. Additionally, stock-based compensation increased by $64.2
million due to our adoption of SFAS No. 123(R) during the first quarter of
fiscal year 2007. Facilities expenses and expenses related to computer software
and equipment increased as a result of the increase in personnel. In-process
Research and development, or IPR&D increased by $14.0 million as a result of
our acquisitions of PortalPlayer and Hybrid Graphics during fiscal year 2007.
Other expenses increased primarily due to travel and other employee related
expenses associated with the expansion of our international sites including our
acquisitions of ULi and Hybrid Graphics.
We anticipate
that we will continue to devote substantial resources to research and
development, and we expect these expenses to increase in absolute dollars in the
foreseeable future due to the increased complexity and the greater number of
products under development. Research and development expenses are likely to
fluctuate from time to time to the extent we make periodic incremental
investments in research and development and these investments may be independent
of our level of revenue.
Sales, General and
Administrative
Fiscal
Year 2008 vs. Fiscal Year 2007
Sales, general and
administrative expenses were $341.3 million and $293.5 million during
fiscal years 2008 and 2007, respectively, an increase of $47.8 million, or
16%. The increase is primarily due to the increase in salaries and
benefits by approximately $31.4 million related to the growth in personnel by
approximately 180 additional personnel. Additionally, salaries and benefits
expenses also increased due to the increase in our variable compensation expense
as a result of our financial performance for fiscal year 2008. Advertising and
promotion expenses increased by $4.2 million primarily due to costs incurred for
sponsorships and increased advertising campaign costs. The increase
in personnel during the year and the expansion of our facilities worldwide to
support additional personnel resulted in increases in our facilities
expenses, stock-based compensation expense and depreciation and amortization
expenses.
Fiscal
Year 2007 vs. Fiscal Year 2006
Sales, general and administrative
expenses were $293.5 million and $202.1 million during fiscal years 2007
and 2006, respectively, an increase of $91.4 million, or 45%. The
increase is primarily due to increase in salaries and benefits by approximately
$30.7 million related to approximately 200 additional personnel and an increase
of $40.7 million related to stock-based compensation resulting from our adoption
of SFAS No. 123(R) during the first quarter of fiscal year
2007. The growth in personnel during the year resulted in an increase
in facilities expenses and depreciation and amortization expenses.
We expect
operating expenses to increase in the first quarter of fiscal year 2009 compared
to the fourth quarter of fiscal year 2008 as a result of the impact of
acquisitions we have recently completed and as a result of an increase in
salaries and benefit expenses.
In-process
research and development
In
connection with our acquisition of Mental Images in November 2007, PortalPlayer
in January 2007 and Hybrid Graphics in March 2006, we wrote-off $4.0 million,
$13.4 million and $0.6 million, respectively, of in-process research and
development, or IPR&D, that had not yet reached technological feasibility
and had no alternative future use. In accordance with SFAS No. 2, Accounting for Research and
Development Costs, as clarified by FIN 4, Applicability of SFAS No. 2 to
Business Combinations Accounted for by the Purchase Method an interpretation of
SFAS No. 2, amounts assigned to IPR&D meeting the
above-stated criteria must be charged to expense as part of the allocation of
the purchase price.
Settlement
Costs
Settlement
costs were $14.2 million for fiscal year 2006. The settlement costs are
associated with two litigation matters, 3dfx and American Video Graphics, or
AVG. AVG is settled. For further information about the 3dfx matter, please refer
to Note 12 of the Notes to Consolidated Financial Statements.
Interest
Income and Interest Expense
Interest
income consists of interest earned on cash, cash equivalents and marketable
securities. Interest income increased to $64.3 million in fiscal year 2008, from
$41.8 million in fiscal year 2007, primarily due to the result of higher average
balances of cash, cash equivalents and marketable securities and higher interest
rates in fiscal year 2008 compared to fiscal year 2007. Interest income
increased to $41.8 million in fiscal year 2007 from $20.7 million in fiscal year
2006 primarily due to the result of higher average balances of cash, cash
equivalents and marketable securities and higher interest rates in fiscal year
2007 compared to fiscal year 2006.
Other Income (Expense),
net
Other income and expense
primarily consists of realized gains and losses on the sale of marketable
securities and foreign currency translation. Other income (expense)
increased to $0.8 million in fiscal year 2008 from ($0.8) million in fiscal year
2007. The increase in other income during fiscal year 2008 compared to fiscal
year 2007 is primarily due to approximately $2.0 million of realized gains on
sale of an investment offset by an increase in foreign currency translation
losses in fiscal year 2008.
Income Taxes
We recognized income tax
expense of $103.7 million, $46.4 million and $55.6 million during fiscal years
2008, 2007 and 2006, respectively. Income tax expense as a percentage of income
before taxes, or our annual effective tax rate, was 11.5% in fiscal year 2008,
9.4% in fiscal year 2007, and 15.6% in fiscal year 2006.
The difference in the
effective tax rates amongst the three years was primarily a result of changes in
our geographic mix of income subject to tax, with the additional change in mix
due to certain stock-based compensation expensed for financial accounting
purposes under SFAS No. 123(R) and an increase in the research tax credit
benefit in fiscal years 2008 and 2007.
Please refer to Note 13
of the Notes to Consolidated Financial Statements for further information
regarding the components of our income tax expense.
Liquidity
and Capital Resources
|
As
of January 27, 2008
|
|
As
of January 28, 2007
|
|
|
(In
millions)
|
|
Cash
and cash equivalents
|
|
$ |
727.0 |
|
|
$ |
544.4 |
|
|
|
|
1,082.5 |
|
|
|
573.4 |
|
Cash,
cash equivalents, and marketable securities
|
|
$ |
1,809.5 |
|
|
$ |
1,117.8 |
|
|
Year
Ended
|
|
|
January
27,
|
|
January
28,
|
|
January
29,
|
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In
millions)
|
|
Net
cash provided by operating activities
|
|
$ |
1,270.2 |
|
|
$ |
572.7 |
|
|
$ |
446.4 |
|
Net
cash used in investing activities
|
|
|
(761.3
|
) |
|
|
(526.4
|
) |
|
|
(41.8
|
) |
Net
cash used in financing activities
|
|
|
(326.3
|
) |
|
|
(53.6
|
) |
|
|
(61.4
|
) |
As of January 27, 2008, we had $1.81
billion in cash, cash equivalents and marketable securities, an increase of
$691.6 million from the end of fiscal year 2007. Our portfolio of cash
equivalents and marketable securities is managed by several financial
institutions. Our investment policy requires the purchase of top-tier investment
grade securities, the diversification of asset type and includes certain limits
on our portfolio duration.
Operating
activities
Operating activities generated
cash of $1.27 billion, $572.7 million and $446.4 million during fiscal years
2008, 2007 and 2006, respectively. The cash provided by operating activities
increased due to an increase in our net income during the comparable periods
plus the impact of non-cash charges to earnings and deferred income
taxes. During fiscal year 2008, non-cash charges to earnings included
stock-based compensation of $133.4 million and depreciation and amortization on
our long-term assets of $133.2 million. Additionally, operating cash
flows for fiscal year 2008 also improved due to changes in operating assets and
liabilities, including the timing of payments to vendors and an improvement in
inventory turnover. These increases were offset by approximately
$57.3 million in net cash outflows towards a confidential patent licensing
agreement that we entered into in fiscal year 2007.
The increase in cash
flows from operating activities in fiscal year 2007 when compared to fiscal year
2006 was primarily due to an increase in our net income during the comparable
periods plus the impact of non-cash charges to
earnings. Additionally, the increase is related to the $116.7 million
of stock-based compensation expense recorded upon adoption of SFAS No. 123(R) in
fiscal year 2007 and changes in operating assets and liabilities in fiscal years
2007 and 2006.
Investing
activities
Investing activities have
consisted primarily of purchases and sales of marketable securities, acquisition
of businesses and purchases of property and equipment, which include leasehold
improvements for our facilities and intangible assets. Investing activities used
cash of $761.3 million, $526.4 million and $41.8 million during fiscal years
2008, 2007 and 2006, respectively. Investing activities for fiscal
year 2008 used cash of $496.4 million towards the net purchases of marketable
securities, resulting from the need to invest the additional amounts of cash we
received from operating activities, and $75.5 million for our acquisition of
Mental Images. Investing activities also included $187.7 million of
capital expenditures. Capital expenditures included purchase of property in
anticipation of building additional facilities to accommodate our growing
employee headcount, new research and development equipment, testing equipment to
support our increased production requirements, technology licenses, software,
intangible assets and leasehold improvements at our facilities in various
international locations.
In fiscal year 2007, net
cash used in investing activities included $401.8 million used for our
acquisitions of PortalPlayer, ULi and Hybrid Graphics. Additionally,
net cash used in investing activities included capital expenditures of $130.8
million attributable to new research and development equipment, hardware
equipment, technology licenses, software, intangible assets and leasehold
improvements at our various facilities. Net cash used by investing
activities during fiscal year 2006 was primarily due to $79.6 million for
capital expenditures primarily attributable to purchases of new research and
development equipment, hardware equipment, technology licenses, software,
intangible assets and leasehold improvements at our headquarters facility in
Santa Clara, California and at our international sites.
We expect to spend
approximately $400 million to $450 million for capital expenditures during
fiscal year 2009, primarily for the purchase of facilities, leasehold
improvements, software licenses, emulation equipment, computers and engineering
workstations. Our estimates for future capital expenditures include
approximately $150.0 million for a property that includes approximately 25 acres
of land and ten commercial buildings in Santa Clara, California, which we
purchased on February 14, 2008. In addition, we may continue to use cash in
connection with the acquisition of new businesses or assets.
Financing
activities
Financing activities used
cash of $326.3 million, $53.6 million and $61.4 million during fiscal years
2008, 2007 and 2006, respectively. Net cash used by financing
activities in fiscal year 2008 was primarily due to $552.5 million paid towards
our stock repurchase program, offset by cash proceeds of $226.0 million from
common stock issued under our employee stock plans.
During fiscal years 2007 and
2006, net cash used by financing activities towards payments under our stock
repurchase program was $275.0 million and $188.5 million, respectively. These
uses of cash in financing activities were offset by cash proceeds from common
stock issued under our employee stock plans of $221.2 million and $127.5
million, for fiscal years 2007 and 2006, respectively.
Liquidity
Cash
generated by operations is used as our primary source of
liquidity. Our investment portfolio consisted of cash and cash
equivalents, asset-backed securities, commercial paper, mortgage-backed
securities issued by Government-sponsored enterprises, equity securities, money
market funds and highly liquid debt securities of corporations, municipalities
and the United States government and its agencies. As of January 27,
2008, we did not have any investments in auction-rate preferred securities.
These investments are denominated in United States dollars.
We
account for our investment instruments in accordance with Statement of Financial
Accounting Standards No. 115, or SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. All of the cash equivalents and marketable
securities are treated as “available-for-sale” under SFAS No. 115. Investments
in both fixed rate and floating rate interest earning instruments carry a degree
of interest rate risk. Fixed rate debt securities may have their market value
adversely impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates fall. Due in
part to these factors, our future investment income may fall short of
expectations due to changes in interest rates or if the decline in fair value of
our publicly traded debt or equity investments is judged to be
other-than-temporary. We may suffer losses in principal if we are forced to sell
securities that decline in market value due to changes in interest rates.
However, because any debt securities we hold are classified as
“available-for-sale,” no gains or losses are realized in income statement due to
changes in interest rates unless such securities are sold prior to maturity or
unless declines in market values are determined to be
other-than-temporary. These securities are reported at fair value
with the related unrealized gains and losses included in accumulated other
comprehensive income, a component of stockholders’ equity, net of
tax.
At
January 27, 2008 and January 28, 2007, we had $1.81 billion and $1.12 billion,
respectively, in cash, cash equivalents and marketable
securities. Our investment policy requires the purchase of top-tier
investment grade securities, the diversification of asset type and includes
certain limits on our portfolio duration, as specified in our investment policy
guidelines. These guidelines also limit the amount of credit exposure to any one
issue, issuer or type of instrument. As of January 27, 2008, we were in
compliance with our investment policy and did not have any issuer concentration
in excess of 10% of our investment portfolio. Our investments in the
financial sector and government agencies accounted for approximately 46% and
22%, respectively, of our total investment portfolio as of January 27,
2008. Substantially all of our investments in debt instruments are with
A/A2 or better rated issuers, and the substantial majority of the issuers are
rated AA-/Aa3 or better. As of January 27, 2008, $1.1 billion of
our portfolio had a maturity of less than a year, and a substantial majority of
our remaining investments have remaining maturities of three years or less. In
fiscal year 2008, we did not recognize any other-than-temporary impairments on
our portfolio of available-for-sale investments. Please refer to Note
7 of the Notes to Consolidated Financial Statements for additional information
on marketable securities.
Recent
U.S. sub-prime mortgage defaults have had a significant impact across various
sectors of the financial markets, causing global credit and liquidity issues.
The short-term funding markets experienced issues during the third and fourth
quarter of calendar 2007, leading to liquidity disruption in the market. If the
global credit market continues to deteriorate, our investment portfolio may be
impacted and we could determine some of our investments are impaired which could
adversely impact our financial results.
Stock Repurchase
Program
During fiscal year 2005, we announced that our Board, had authorized a stock
repurchase program to repurchase shares of our common stock, subject to certain
specifications, up to an aggregate maximum amount of $300
million. During fiscal year 2007, the Board further approved an
increase of $400 million to the original stock repurchase program. In fiscal
year 2008, we announced that our Board authorized an additional stock repurchase
program under which we may purchase up to an additional $1.0 billion of our
common stock over a three year period through May 2010. As a result of these
increases, we have an ongoing authorization from the Board, subject to certain
specifications, to repurchase shares of our common stock up to an aggregate
maximum amount of $1.7 billion.
The
repurchases will be made from time to time in the open market, in privately
negotiated transactions, or in structured stock repurchase programs, and may be
made in one or more larger repurchases, in compliance with the Exchange Act Rule
10b-18, subject to market conditions, applicable legal requirements, and other
factors. The program does not obligate NVIDIA to acquire any particular amount
of common stock and the program may be suspended at any time at our
discretion. As part of our share repurchase program, we have entered into,
and we may continue to enter into, structured share repurchase transactions with
financial institutions. These agreements generally require that we make an
up-front payment in exchange for the right to receive a fixed number of shares
of our common stock upon execution of the agreement, and a potential incremental
number of shares of our common stock, within a pre-determined range, at the end
of the term of the agreement.
During the fiscal year ended
January 27, 2008, we entered into a structured share repurchase transaction to
repurchase 18.9 million shares for $499.4 million which we recorded on the trade
date of the transaction. In addition, we repurchased 1.8 million
shares for $53.1 million in the open market in privately negotiated
transactions. Through January 27, 2008, we had repurchased 61.7 million shares
under our stock repurchase program for a total cost of
$1.04 billion.
Subsequent to January 27, 2008,
we entered into a structured share repurchase transaction to repurchase shares
of our common stock for $123.9 million that we expect to settle prior to the end
of our first quarter of fiscal year 2009 ending on
April 27, 2008.
Operating Capital and
Capital Expenditure Requirements
We believe that our
existing cash balances and anticipated cash flows from operations will be
sufficient to meet our operating, acquisition and capital requirements for at
least the next 12 months. However, there is no assurance that we will not need
to raise additional equity or debt financing within this time frame. Additional
financing may not be available on favorable terms or at all and may be dilutive
to our then-current stockholders. We also may require additional capital for
other purposes not presently contemplated. If we are unable to obtain sufficient
capital, we could be required to curtail capital equipment purchases or research
and development expenditures, which could harm our business. Factors that could
affect our cash used or generated from operations and, as a result, our need to
seek additional borrowings or capital include:
·
|
decreased demand and market
acceptance for our products and/or our customers’
products;
|
·
|
inability to successfully develop
and produce in volume production our next-generation
products;
|
·
|
competitive pressures resulting
in lower than expected average selling prices;
and
|
·
|
new product announcements or
product introductions by our
competitors.
|
Our estimates for future
capital expenditures include approximately $150.0 million for a property that
includes approximately 25 acres of land and ten commercial buildings in Santa
Clara, California, which we purchased on February 14, 2008. In addition, we may
continue to use cash in connection with the acquisition of new businesses or
assets.
For additional factors
see “Item 1A. Risk Factors - Risks Related to Our Business and Products - Our
operating results are unpredictable and may fluctuate, and if our operating
results are below the expectations of securities analysts or investors, the
trading price of our stock could decline.”
3dfx
Asset Purchase
On December
15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into
an Asset Purchase Agreement, or APA, which closed on April 18, 2001, to purchase
certain graphics chip assets from 3dfx. Under the terms of the APA, the cash
consideration due at the closing was $70.0 million, less $15.0 million that was
loaned to 3dfx pursuant to a Credit Agreement dated December 15, 2000. The
Asset Purchase Agreement also provided, subject to the other provisions thereof,
that if 3dfx properly certified that all its debts and other liabilities had
been provided for, then we would have been obligated to pay 3dfx one million
shares, which due to subsequent stock splits now totals six million shares, of
NVIDIA common stock. If 3dfx could not make such a certification, but instead
properly certified that its debts and liabilities could be satisfied for less
than $25.0 million, then 3dfx could have elected to receive a cash payment equal
to the amount of such debts and liabilities and a reduced number of shares of
our common stock, with such reduction calculated by dividing the cash payment by
$25.00 per share. If 3dfx could not certify that all of its debts and
liabilities had been provided for, or could not be satisfied, for less than
$25.0 million, we would not be obligated under the agreement to pay any
additional consideration for the assets.
In October
2002, 3dfx filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the Northern District of California. In March 2003, we were
served with a complaint filed by the Trustee appointed by the Bankruptcy Court
which sought, among other things, payments from us as additional purchase price
related to our purchase of certain assets of 3dfx. In early November 2005,
after several months of mediation, NVIDIA and the Official Committee of
Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan of
Liquidation of 3dfx, which included a conditional settlement of the Trustee’s
claims against us. This conditional settlement was subject to a confirmation
process through a vote of creditors and the review and approval of the
Bankruptcy Court after notice and hearing. The conditional settlement called for
a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the
settlement, $5.6 million related to various administrative expenses and Trustee
fees, and $25.0 million related to the satisfaction of debts and liabilities
owed to the general unsecured creditors of 3dfx. Accordingly, during the three
month period ended October 30, 2005, we recorded $5.6 million as a charge to
settlement costs and $25.0 million as additional purchase price for
3dfx. The Trustee advised that he intended to object to the
settlement. However, the conditional settlement never progressed substantially
through the confirmation process.
On December
21, 2005, the Bankruptcy Court determined that it would schedule trial of one
portion of the Trustee’s case against NVIDIA. On January 2, 2007, NVIDIA
exercised its right to terminate the settlement agreement on grounds that the
Bankruptcy Court had failed to proceed toward confirmation of the Creditors’
Committee’s plan. A non-jury trial began on March 21, 2007 on valuation issues
in the Trustee's constructive fraudulent transfer claims against NVIDIA.
Specifically, the Bankruptcy Court tried four questions: (1) what did 3dfx
transfer to NVIDIA in the APA?; (2) of what was transferred, what qualifies as
"property" subject to the Bankruptcy Court's avoidance powers under the Uniform
Fraudulent Transfer Act and relevant bankruptcy code provisions?; (3) what is
the fair market value of the "property" identified in answer to question (2)?;
and (4) was the $70 million that NVIDIA paid "reasonably equivalent" to the fair
market value of that property? At the conclusion of the evidence, the Bankruptcy
Court asked the parties to submit post-trial briefing. That briefing was
completed on May 25, 2007, and the Bankruptcy Court’s decision is still
pending.
Please refer to Note 12
of the Notes to Consolidated Financial Statements for further information
regarding this litigation.
Contractual
Obligations
The following table summarizes
our contractual obligations as of January 27, 2008:
Contractual
Obligations
|
|
Total
|
|
|
Within
1 Year
|
|
|
2-3
Years
|
|
|
4-5
Years
|
|
|
After
5 Years
|
|
|
All
Other
|
|
|
|
(In
thousands)
|
|
|
|
$ |
188,623 |
|
|
$ |
42,912 |
|
|
$ |
84,524 |
|
|
$ |
54,763 |
|
|
$ |
6,424 |
|
|
$ |
- |
|
|
|
|
651,642 |
|
|
|
651,642 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
- |
|
FIN
48 liability and interest (2)
|
|
|
88,993 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
88,993 |
|
Capital
purchase obligations
|
|
|
11,840 |
|
|
|
11,840 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
contractual obligations
|
|
$ |
941,098 |
|
|
$ |
706,394 |
|
|
$ |
84,524 |
|
|
$ |
54,763 |
|
|
$ |
6,424 |
|
|
$ |
88,993 |
|
(1)
|
Represents
our inventory purchase commitments as of January 27,
2008.
|
(2)
|
Represents
our FIN 48 liability and FIN 48 net interest/penalty payable for $77.8
million and $11.2 million, respectively, as of January 27,
2008. We are unable to reasonably estimate the timing of FIN 48
liability and interest/penalty payments in individual years due to
uncertainties in the timing of the effective settlement of tax
positions.
|
During fiscal year 2007,
we entered into a confidential patent licensing arrangement. Our commitment for
license payments under this arrangement could range from $97.0 million to $110.0
million over a ten year period; however, the net outlay under this arrangement
may be reduced by the occurrence of certain events covered by the
arrangement. Through January 27, 2008, we had made payments of $81.3
million towards this arrangement.
Off-Balance Sheet
Arrangements
As of January 27, 2008,
we had no material off-balance sheet arrangements as defined in Regulation S-K
303(a)(4)(ii).
Recently
Issued Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 157, or SFAS No. 157, Fair Value Measurements. SFAS
No. 157 establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The changes to current practice resulting from
the application of SFAS No. 157 relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. However, in December 2007, the
FASB issued a proposed staff position that delayed the effective date of SFAS
No. 157 for non-financial assets and non-financial liabilities to fiscal years
beginning after November 15, 2008. We are required to adopt the
provisions of SFAS No. 157 beginning with our fiscal quarter ending April 27,
2008 related to financial assets and liabilities. We do not believe the adoption
of SFAS No. 157 will have a material impact on our consolidated financial
position, results of operations and cash flows.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, or SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities. SFAS
No. 159 permits companies to choose to measure certain financial
instruments and certain other items at fair value. The standard requires that
unrealized gains and losses on items for which the fair value option has been
elected be reported in earnings. We are required to adopt the provisions of SFAS
No. 159 beginning with our fiscal quarter ending April 27, 2008. We do not
believe the adoption of SFAS No. 159 will have a material impact on our
consolidated financial position, results of operations and cash
flows.
In June 2007, the FASB
ratified Emerging Issues Task Force Issue No. 07-3, or EITF 07-3,
Accounting for Nonrefundable
Advance Payments for Goods or Services to Be Used in Future Research and
Development Activities. EITF 07-3 requires non-refundable advance
payments for goods and services to be used in future research and development
activities to be recorded as an asset and the payments to be expensed when the
research and development activities are performed. We are required to adopt the
provisions of EITF 07-3 beginning with our fiscal quarter ending April 27, 2008.
The adoption of EITF 07-3 is not expected to have a significant impact on our
consolidated financial position, results of operations and cash
flows.
In December 2007, the FASB
issued Statement of Financial Accounting Standards No. 141 (revised
2007), or SFAS No. 141(R), Business Combinations. Under
SFAS No. 141(R), an entity is required to recognize the assets
acquired, liabilities assumed, contractual contingencies, and contingent
consideration at their fair value on the acquisition date. It further requires
that acquisition-related costs be recognized separately from the acquisition and
expensed as incurred, restructuring costs generally be expensed in periods
subsequent to the acquisition date, and changes in accounting for deferred tax
asset valuation allowances and acquired income tax uncertainties after the
measurement period impact income tax expense. In addition, acquired in-process
research and development, or IPR&D is capitalized as an intangible asset and
amortized over its estimated useful life. We are required to adopt
the provisions of SFAS No. 141(R) beginning with our fiscal quarter ending April
26, 2009. The adoption of SFAS No. 141(R) is expected to
change our accounting treatment for business combinations on a prospective basis
beginning in the period it is adopted.
Investment
and Interest Rate Risk
At
January 27, 2008 and January 28, 2007, we had $1.81 billion and $1.12 billion,
respectively, in cash, cash equivalents and marketable securities. We
invest in a variety of financial instruments, consisting principally of cash and
cash equivalents, asset-backed securities, commercial paper, mortgage-backed
securities issued by Government-sponsored enterprises, equity securities, money
market funds and highly liquid debt securities of corporations, municipalities
and the United States government and its agencies. As of January 27, 2008,
we did not have any investments in auction-rate preferred securities. These
investments are denominated in United States dollars.
We
account for our investment instruments in accordance with Statement of Financial
Accounting Standards No. 115, or SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities. All of the cash equivalents and marketable
securities are treated as “available-for-sale” under SFAS No. 115. Investments
in both fixed rate and floating rate interest earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their market value
adversely impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates fall. Due in
part to these factors, our future investment income may fall short of
expectations due to changes in interest rates or if the decline in fair value of
our publicly traded debt or equity investments is judged to be
other-than-temporary. We may suffer losses in principal if we are forced to sell
securities that decline in securities market value due to changes in interest
rates. However, because any debt securities we hold are classified as
“available-for-sale,” no gains or losses are realized in income statement due to
changes in interest rates unless such securities are sold prior to maturity or
unless declines in value are determined to be other-than-temporary. These
securities are reported at fair value with the related unrealized gains and
losses included in accumulated other comprehensive income, a component of
stockholders’ equity, net of tax.
As of January
27, 2008, we performed a sensitivity analysis on our floating and fixed rate
financial investments. According to our analysis, parallel shifts in the yield
curve of both +/- 0.5% would result in changes in fair market values for these
investments of approximately $3.1 million.
Recent U.S.
sub-prime mortgage defaults have had a significant impact across various sectors
of the financial markets, causing global credit and liquidity issues. The
short-term funding markets experienced issues during the third and fourth
quarter of calendar 2007, leading to liquidity disruption in the market. If the
global credit market continues to deteriorate, our investment portfolio may be
impacted and we could determine some of our investments are impaired, which
could adversely impact our financial results. As of January 27, 2008, we did not
have any issuer concentration in excess of 10% of our investment portfolio.
However, our investments in the financial sector and government agencies
accounted for approximately 46% and 22%, respectively, of our total investment
portfolio. If the fair value of our investments in these sectors was to decline
by 2%-5%, it would result in changes in fair market values for these investments
by approximately $22-$54 million.
Exchange
Rate Risk
We
consider our direct exposure to foreign exchange rate fluctuations to be
minimal. Gains or losses from foreign currency remeasurement are
included in “Other income (expense), net” in our Consolidated Financial
Statements and to date have not been significant. The aggregate
exchange loss included in determining net income was $1.7 million in fiscal year
2008 and $0.5 million in fiscal year 2007. The impact of exchange
gain/loss was not material in fiscal year 2006. Currently, sales and
arrangements with third-party manufacturers provide for pricing and payment in
United States dollars, and, therefore, are not subject to exchange rate
fluctuations. Increases in the value of the United States’ dollar relative to
other currencies would make our products more expensive, which could negatively
impact our ability to compete. Conversely, decreases in the value of the United
States’ dollar relative to other currencies could result in our suppliers
raising their prices in order to continue doing business with us. Fluctuations
in currency exchange rates could harm our business in the
future.
We may
enter into certain transactions such as forward contracts which are designed to
reduce the future potential impact resulting from changes in foreign currency
exchange rates. There were no forward exchange contracts outstanding at January
27, 2008.
The
information required by this Item is set forth in our Consolidated Financial
Statements and Notes thereto included in this Annual Report on Form
10-K.
Not
applicable.
Controls
and Procedures
Disclosure
Controls and Procedures
Based on
their evaluation as of January 27, 2008, our management, including our
Chief Executive Officer and Chief Financial Officer, has concluded that our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act) were effective.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting as of January 27, 2008 based on the criteria set forth
in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on our evaluation under the criteria set forth
in Internal Control —
Integrated Framework, our management concluded that our internal control
over financial reporting was effective as of January 27, 2008.
The
effectiveness of our internal control over financial reporting as of
January 27, 2008 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in its report which is
included herein.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal controls over financial reporting during our
last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Inherent
Limitations on Effectiveness of Controls
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls, will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within NVIDIA have been detected.
None.
Identification
of Directors
Reference is made to
the information regarding directors appearing under the heading “Proposal 1-
Election of Directors” in our 2008 Proxy Statement, which information is hereby
incorporated by reference.
Identification
of Executive Officers
Reference is made to the information
regarding executive officers appearing under the heading “Executive Officers of
the Registrant” in Part I of this Annual Report on Form 10-K, which information
is hereby incorporated by reference.
Identification of Audit Committee and
Financial Expert
Reference
is made to the information regarding directors appearing under the heading
“Report of the Audit Committee of the Board of Directors” and “Information about
the Board of Directors and Corporate Governance” in our 2008 Proxy Statement,
which information is hereby incorporated by reference.
Material Changes to Procedures for
Recommending Directors
Reference
is made to the information regarding directors appearing under the heading
“Information about the Board of Directors and Corporate Governance” in our 2008
Proxy Statement, which information is hereby incorporated by
reference.
Compliance with Section 16(a) of
the Exchange Act
Reference is
made to the information appearing under the heading “Section 16(a) Beneficial
Ownership Reporting Compliance” in our 2008 Proxy Statement, which information
is hereby incorporated by reference.
Code of Conduct
Reference
is made to the information appearing under the heading “Information about the
Board of Directors and Corporate Governance - Code of Conduct” in our 2008 Proxy
Statement, which information is hereby incorporated by reference. The full text
of our “Worldwide Code of Conduct” and “Financial Team Code of Conduct” are
published on the Investor Relations portion of our web site, under Corporate
Governance, at www.nvidia.com. The
contents of our website are not a part of this report.
The
information required by this item is hereby incorporate by reference from the
sections entitled “Executive Compensation”, “Compensation Committee
Interlocks and Insider Participation”, “Director Compensation” and
“Compensation Committee Report” in our 2008 Proxy Statement.
Ownership
of NVIDIA Securities
The
information required by this item is hereby incorporated by reference from the
section entitled “Security Ownership of Certain Beneficial Owners and
Management” in our 2008 Proxy Statement.
Equity
Compensation Plan Information
Information
regarding our equity compensation plans, including both stockholder approved
plans and non-stockholder approved plans, will be contained in our definitive
Proxy Statement with respect to our Annual Meeting of Stockholders under the
caption "Equity Compensation Plan Information," and is incorporated by reference
into this report.
The
information required by this item is hereby incorporated by reference from the
sections entitled “Transactions with Related Persons” and “Information about the
Board of Directors and Corporate Governance - Independence of the Members
of the Board of Directors” in our 2008 Proxy Statement.
The
information required by this item is hereby incorporated by reference from the
section entitled “Fees Billed by the Independent Registered Public Accounting
Firm” in our 2008 Proxy Statement.
|
EXHIBITS, FINANCIAL STATEMENT
SCHEDULE
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Page
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(a)
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1.
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Consolidated
Financial Statements
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62
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63
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64
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65
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66
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68
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(a)
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2.
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Financial
Statement Schedule
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105
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(a)
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3.
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Exhibits
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106
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To
the Stockholders
and Board of Directors of NVIDIA Corporation:
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of NVIDIA Corporation and its subsidiaries at January 27, 2008 and
January 28, 2007, and the results of their operations and their cash flows for
each of the three years in the period ended January 27, 2008 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of January 27, 2008, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in
Management's Annual Report on Internal Control over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on
these financial statements, on the financial statement schedule, and on the
Company's internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.
As
discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for stock-based compensation in fiscal
2007.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
San Jose,
CA
March 21,
2008
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Year
Ended
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January 27,
2008
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January 28,
2007
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January 29,
2006
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Sales,
general and administrative
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Other
income (expense), net
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Income
before income tax expense
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Income
before change in accounting principle
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Cumulative
effect of change in accounting principle, net of tax
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Income
before change in accounting principle
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Cumulative
effect of change in accounting principle
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Basic
net income per share
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Shares
used in basic per share computation (1)
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Diluted
income per share:
|
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Income
before change in accounting principle
|
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Cumulative
effect of change in accounting principle
|
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Diluted
net income per share
|
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Shares
used in diluted per share computation (1)
|
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(1) Reflects
a three-for-two stock split effective on September 10, 2007 and a two-for-one
stock split effective on April 6, 2006.
See
accompanying notes to consolidated financial statements.
|
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January
27, 2008
|
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January
28, 2007
|
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Cash
and cash equivalents
|
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$ |
726,969 |
|
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$ |
544,414 |
|
|
|
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1,082,509 |
|
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|
573,436 |
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Accounts
receivable, less allowances of $19,693 and $15,749 in 2008 and 2007,
respectively
|
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|
666,494 |
|
|
|
518,680 |
|
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|
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358,521 |
|
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354,680 |
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Prepaid
expenses and other
|
|
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43,068 |
|
|
|
31,141 |
|
|
|
|
11,268 |
|
|
|
9,419 |
|
|
|
|
2,888,829 |
|
|
|
2,031,770 |
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Property
and equipment, net
|
|
|
359,808 |
|
|
|
260,828 |
|
|
|
|
354,057 |
|
|
|
301,425 |
|
|
|
|
106,926 |
|
|
|
45,511 |
|
Deposits
and other assets
|
|
|
38,051 |
|
|
|
28,349 |
|
|
|
|
- |
|
|
|
7,380 |
|
|
|
$ |
3,747,671 |
|
|
$ |
2,675,263 |
|
|
|
|
|
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
492,099 |
|
|
$ |
272,075 |
|
|
|
|
475,062 |
|
|
|
366,732 |
|
|